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- Gary Gensler added that the crypto lenders offered yields that were “too good to be true” and unsustainable.
- He further referred to stablecoins as “poker chips” of the DeFi market that required more regulatory oversight.
Earlier this week on Wednesday, July 13, crypto lender Celsius Networks filed for Chapter 11 bankruptcy proceedings. The announcement came just a week after another crypto lender Voyager Digital filed for similar bankruptcy proceedings.
Post the two major insolvencies this month, SEC chair Gary Gensler spoke to Yahoo Finance on Thursday, July 14, expressing concerns about the way these crypto lending companies have been operating. During the bull market of 2021, these lenders attracted investor money by offering high yields.
The crypto lenders offered yields anywhere between 4 percent to 20 percent and marketed themselves as safe platforms. Calling out their activities, Gensler said that these yields were totally unrealistic. “If it’s too good to be true, then maybe it is. There may be a lot of risks embedded in that,” he added.
Both – Celsius and Voyager – lured customers by promising them high yields. As per the bankruptcy documents filed with the court, Celsius Networks is currently owing $4.7 billion to the depositors. Also, the bankruptcy documents reveal that Celsius has a staggering $1.2 billion deficit on its balance sheet.
The recent filings also reveal that it’s not sure whether depositors will ever get their funds back. However, Celsius has claimed that the Chapter 11 bankruptcy proceedings will help them reorganize its business offering a greater layer of safety to its customers.
Gary Gensler Refers to Stablecoins as Poker Chips
One area where the regulators are paying heavy attention is the unregulated stablecoins markets. Gensler said that the main use of the fiat-pegged stablecoins is to serve as a settlement tool in DeFi. A settlement tool in DeFi basically refers to a financial tool that enables lending, borrowing, and trading crypto assets without the need of any third-party intermediaries.
The SEC chair also referred to stablecoins as “poker chips” and called for immediate regulations. He added that the cryptocurrency market lacks enough protection for investors and is largely prone to manipulation. During his interview with Yahoo Finance, Gensler added:
The public benefits by knowing full and fair disclosure and that someone’s not lying to them. You get to decide what risks you want to take, but the person raising the money and the person selling you those financial assets ought to not defraud you, ought to give you the information so you can make your decisions.
The SEC has some rules in place to categorize an investment firm. Gensler’s pointed out the SEC’s review of crypto lender BlockFi earlier this year wherein it found that it was non-compliant and was working as an unregistered investment company.
Later in February 2022, BlockFi had to pay $100 million as part of the settlement with the SEC. Gensler said that the company was in trouble because of its lack of information to investors. “There is a path forward for these lending companies,” he added.
Working with stakeholders
The SEC chair further added that the regulator will continue to work with three major crypto players – exchanges, broker-dealers, and lending institutions. He also said that the securities regulator is keeping a watch on the broader crypto space.
Furthermore, Gensler added that SEC will work with bank regulators and the Commodity Futures Trading Commission (CFTC) to cover the full scope of crypto regulations.