What took place: Last week, the Securities and Exchange Commission (SEC) brought charges against cryptocurrency exchange Gemini and lender Genesis for selling securities that were not registered. Through Genesis, users of the Gemini Earn program could lend out their crypto assets and earn interest. However, Genesis froze withdrawals on its platform the previous year, preventing approximately 340,000 Gemini Earn customers from accessing approximately $900 million in assets.
So what? It’s not clear if the move will help customers of Gemini Earn get their money back. However, the risks associated with crypto lending platforms have never been more apparent to crypto investors. Regardless of the crypto exchange you use, if you earn interest, you should know where the money is coming from.
Because these interest-bearing accounts fall under the category of securities, the SEC is taking legal action against several crypto lenders. The Securities and Exchange Commission (SEC) enforces stringent regulations regarding securities trading. These include fully disclosing the risks to investors, which the SEC claims Genesis and Gemini did not do.
There are restrictions on what the bank can do with your money when you put it in an interest-bearing savings account. FDIC insurance and other safeguards against bank failure also exist. The Securities Investor Protection Corporation (SIPC) provides investors with protection against company failure for stock brokers. While some crypto platforms are covered by third-party insurance and some U.S. dollar deposits are covered by FDIC insurance, many crypto platform assets are not.
“The critical need for platforms offering securities to retail investors to comply with the federal securities laws is underscored by the recent collapse of crypto asset lending programs and the suspension of Genesis’ program,” stated Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.
One of Gemini’s founders, Tyler Winklevoss, tweeted back at the SEC. He stated that Gemini and the SEC had been discussing the Earn program for more than 17 months. “Until Genesis paused withdrawals on November 16th, they never raised the possibility of any enforcement action,” he stated.
Now what? Compared to investing in conventional finance, crypto investments lack as many safeguards. Be aware that the following cryptocurrency accounts offer varying levels of risk and have significant differences:
Custodial wallets: A custodial wallet is typically where your assets will be kept if you leave them on the platform from which you purchased them. Your account may be frozen and you may not be able to access your money if the platform fails. Indeed, bankruptcy proceedings may encumber your funds.
Accounts to stake: Proof-of-stake cryptocurrencies pay token holders who agree to tie up their coins to help secure the blockchain with rewards. Staking crypto can be done in several different ways, but it is usually safer than lending crypto to earn rewards.
Earn-lend accounts: Crypto lending aims to eliminate the middleman from lending. In essence, you lend your crypto directly and receive the interest payment. Unfortunately, it is not always clear who is lending your assets or what risks they are taking.
wallets without custody: You own this kind of cryptocurrency wallet. You are in charge of your funds, unlike a custodial wallet, and there is no loss possibility if your exchange fails. All things considered, there’s a lofty expectation to learn and adapt and if you lose your secret key or seed express, you could likewise lose admittance to your crypto.
Don’t think that your money is safe. Instead, you might want to consider either removing your assets from crypto lending schemes or moving them to a crypto wallet that you control. Without adding the possibility of platform failure, the volatility of cryptocurrency is already risky enough.
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