[HN Gopher] Attorney General orders unregistered crypto lending ...
___________________________________________________________________
Attorney General orders unregistered crypto lending platforms to
exit NY
Author : graeme
Score : 141 points
Date : 2021-10-18 16:51 UTC (6 hours ago)
(HTM) web link (ag.ny.gov)
(TXT) w3m dump (ag.ny.gov)
| joelbondurant wrote:
| The terrorist industry is going for broke.
| asah wrote:
| sigh, falling further behind, even vs California... wall street
| cronyism ?
| debacle wrote:
| Isn't this against the US Constitution, specifically the commerce
| clause?
| elliekelly wrote:
| No. See, _Hall v. Geiger-Jones Co._ [1] (supposedly the origin
| of the term "Blue Sky laws") finding the state law
| constitutional under the state's power to police fraud and not
| invalid as a burden on interstate commerce. There have also
| been several federal laws (enacted after that case was decided)
| prescribing _how_ states may go about regulating securities so
| we can conclude that Congress intends for the states to have
| the power to regulate their securities markets.
|
| [1]https://supreme.justia.com/cases/federal/us/242/539/
| impostervt wrote:
| It'll be curious to see how these decentralized lending platforms
| respond. They can put up disclaimers/walls on their websites, but
| the platforms are on the blockchain and can't be censored.
| JumpCrisscross wrote:
| > _the platforms are on the blockchain and can 't be censored_
|
| New York's Attorney General is powerful.
|
| If someone were stupid enough to openly defy her, they'd be
| facing down against an opponent who can, just off the top of my
| head, freeze funds, seize domains, jail employees and announce
| as tainted affiliated wallets.
|
| Her office was empowered to take on the most powerful financial
| institutions in the country. Apart from the pursuit of an
| insanity defense, these firms have no reason to keep doing
| business in New York.
| impostervt wrote:
| But my point is the firms CAN'T turn off their contracts on
| the blockchain. Anyone can call the contracts.
| [deleted]
| JumpCrisscross wrote:
| > _the firms CAN 'T turn off their contracts on the
| blockchain. Anyone can call the contracts._
|
| I don't think the issue is with the technology _per se_ as
| much as with someone being paid to market it. Grandma isn
| 't going to roll her own wallet. She might see a 4% yield
| on what looks like a savings account and not realize the
| added risk.
|
| Agree that short of nation-state involvement, the contracts
| are probably there to stay. (Though if a state wanted to
| get particularly nasty, they could go after anyone
| maintaining them.)
| xxs wrote:
| The banks will be ordered not to deal with the said firms, so
| they will have no real money coming/going to them.
| gunshai wrote:
| Your statement does not really make any sense. Unless you are
| talking about the centralized banking shutting the ramps to
| coinbase or other large fiat/crypto custodians/exchanges.
|
| That would piss off a lot of people.
|
| With respect to defi, other than trying to shut down entities
| that host the website which is really just a gui for
| interaction I'm stumped at what action exists.
|
| For instance, I go on coinbase buy ethereum and some wrapped
| token. I can then transfer that wrapped token to just about
| ANY smart chain I want paying for the tx, then use that money
| get an over collateralized loan, then go buy some other
| wrapped/native token collect what ever yield I want and use
| that to service the loan fees.
|
| I can then unwind the entire process when ever I want come
| back to coinbase sell the wrapped token on their open market
| and then turn it into fiat. That's not only it. I can unwind
| my loan/yield strategy convert it into an ERC20 stable token
| transfer that any fiat on/off ramp I want and voila. I'll use
| tools to keep track of the transfers/txs pay taxes to the IRS
| on the cost basis.
|
| What can they actually do about that other than action that
| WOULD cause mass panic and induce the very thing they are
| afraid of.
| betwixthewires wrote:
| That's the thing though, the stated goal of all this is for
| it to work without it being run by firms. Most of these
| projects _are_ explicitly firms, or firms masquerading as not
| firms, or firms that have a clear goal to dissolve
| stewardship when these projects can run themselves, and there
| are a couple that aren 't firms. As this process continues,
| there will be lots of projects running without a company of
| any kind. Once that happens, what are governments like that
| of New York going to be able to do?
| bee_rider wrote:
| Regulators tend to not be super proactive and hypothetical,
| right? I suspect they'll wait until people losing money in
| truly community driven crypto markets becomes a significant
| issue, and then chip away wherever they interact with the
| real world, in New York.
| impostervt wrote:
| The ones that I'm familiar with only take and lend crypto.
| graeme wrote:
| What are you talking about? Nexo and Celsius are centralized.
|
| There are no blockchain contracts. When you sign up with
| Celsius, you transfer ownership of all your crypto to them. If
| they went bust, it is their asset and their bond holders get
| it.
|
| In return you get a promise of interest, payable at moment you
| ask to withdraw.
|
| But there's no blockchain contract.
|
| 1. They buy your crypto outright
|
| 2. They gamble it in the markets (their secured debt issuance
| documents lists greyscale, osprey and some stock warrants on a
| failing biotech company as their assets. And one crypto tech
| firm, forget the name)
|
| 3. You hope they don't go bellyup and will give back the crypto
| if you ask for it.
|
| No blockchain contract, total centralization
| recursive4 wrote:
| There are a few salient points to unpack here:
|
| 1. Are these companies breaking the law?
|
| 2. Are Nexo and others "tak[ing] advantage of unsuspecting
| investors"?
|
| 3. Does these companies think they're "above the law"?
|
| 4. Is the Martin Act protecting the investing public in this
| case?
|
| Each of these is deserving of its own in-depth answer, but TLDRs
| are sufficient:
|
| 1. Yes, because securities law is written to be a catch all (both
| the Martin Act and the 1933/34 Securities Acts) where exceptions
| are drawn as to what is _not_ a security. While these accounts
| may act more like traditional "bank accounts", bank accounts are
| specifically excluded from securities law because they fall under
| a (stricter) regulatory regime.
|
| 2. No. The risk profiles on these products match that of
| Robhinhood, Wealthfront, or a Chase checking account (Genesis'
| custodial insurance policy beats the FDIC's $200k ceiling).
| Biggest issue is that you don't own your private keys but that's
| not unique here.
|
| 3. I don't think so, but they do know they're not in full
| compliance. This is a game of Natural Law (see point 4) and cat
| and mouse, and staying ahead of regulators is different than
| being "above" the law.
|
| 4. Stablecoin yield-accounts are one of the few liquid, low-risk
| options for beating inflation and likely the only one accessible
| for every-day people. If anything, they should be more pervasive
| in accordance with the principal that BlockFi, Nexo, etc. and
| their ilk are offering a social good even if it is outside of
| what they are _permitted_ to allow by law. It is US fiscal
| policy, brittle supply chains, and lagging regulatory regimes
| that are detrimental to the investing public here.
| vineyardmike wrote:
| > No. The risk profiles on these products match that of
| Robhinhood, Wealthfront, or a Chase checking account (Genesis'
| custodial insurance policy beats the FDIC's $200k ceiling).
| Biggest issue is that you don't own your private keys but
| that's not unique here.
|
| How are these companies providing 8%+ return on stable coins?
| They have loans at 4.x%, so they're not taking your coins,
| lending it, then returning part of the interest to you (like
| how traditional fiat banks work). With traditional banking the
| interest rate is closely related to bond rates and the federal
| reserve, but that's also not the case here.
|
| Theres no clear reason BlockFi can offer such a high rate.
| Thats a reason for me to be suspicious of the stability and
| risk profile of these compared to a savings account. If I could
| truly be confident in the stability of this, I would happily
| use this as a savings account.
|
| Also, they have insurance, but I'll believe its useful when its
| tested.
| graeme wrote:
| > No. The risk profiles on these products match that of
| Robhinhood, Wealthfront, or a Chase checking account (Genesis'
| custodial insurance policy beats the FDIC's $200k ceiling).
| Biggest issue is that you don't own your private keys but
| that's not unique here.
|
| Nexo, Celsius etc _own_ your crypto. Like the terms say you
| sold it to them. Pretty sure a broker does not own your
| portfolio.
| MrStonedOne wrote:
| >Pretty sure a broker does not own your portfolio.
|
| They do. The shares in your account are registered in the
| brokers name.
| VHRanger wrote:
| Stablecoin yield accounts don't just beat inflation
|
| They guarantee ridiculous crap like 9% yields, beating
| historical equities YoY returns
|
| 9% yields are generally indicative of fraud - especially when
| we've had news of Ponzi like behavior from celsius admitting to
| taking on a $1B USDT loan collateralized by BTC from tether the
| other week.
| xur17 wrote:
| > No. The risk profiles on these products match that of
| Robhinhood, Wealthfront, or a Chase checking account (Genesis'
| custodial insurance policy beats the FDIC's $200k ceiling).
| Biggest issue is that you don't own your private keys but
| that's not unique here.
|
| The fact that it isn't clear to you what this insurance policy
| covers is the concerning part (and the wording is likely not a
| mistake on the part of Nexo, etc). Genesis insures the custody
| of crypto assets. It does not insure against default of the
| vendors it is loaning out to (which is likely the majority of
| their assets).
|
| My understanding is that most of the crypto lending platforms
| deposit with Genesis trading in order to generate a return.
| Genesis trading then loans this money out to different hedge
| funds, trading firms, etc, which pay them interest. I assume
| Genesis does a good job of choosing who to lend to, reducing
| risk, etc, but I also imagine that one black swan event could
| wipe it all out. Ex: USDT collapses HARD, and goes to 0. All of
| the trading firms with excessive USDT exposure collapse,
| Genesis is underwater, etc.
| shimonabi wrote:
| I'm tired of crypto news on HN, even when positive such as this.
| xxs wrote:
| I think only sqlite rivals the frequency to crypto-junk.
| wmf wrote:
| That's so mean; SQLite is a gift to humanity.
| xxs wrote:
| That was the idea with the parallel... still there are tons
| of sqlite posts, of course.
| graeme wrote:
| This is....negative news
| ceejayoz wrote:
| It's negative _for crypto_.
|
| You could argue it's positive _for consumers_.
| graeme wrote:
| Mods, Dang etc: I had to alter the title to fit the character
| limit. Please modify as needed. Actual title was "cease
| operations in New York"
| Wowfunhappy wrote:
| I might recommend "AG Directs Unregistered Crypto Lenders to
| Cease Operations In New York", which seems to fit.
| graeme wrote:
| Oh yeah that's a good one. I can't edit now but always good
| to know for next time
| gargarplex wrote:
| Let's say I'm a NY resident with a Nexo account. What happens to
| my assets?
| thehappypm wrote:
| "Assets"? They're currencies, by law.
| Gene_Parmesan wrote:
| If liquid cash is considered an asset, so too can cryptos.
| Most of them would rather not be recognized as such formally
| due to regulations they desperately want to avoid, but call a
| spade a spade, etc., etc.
| DebtDeflation wrote:
| We're witnessing a crypto repeat of the 2008 mortgage crisis.
| Hoocoodanode v.2021
|
| Where are the federal regulators in all this? As silly as it
| sounds, at some point we're going to have "investors" crying for
| restitution over money they lost in shitcoin ICOs, fart NFTs, and
| the crypto shadow banks described in the article.
| baby wrote:
| As long as they are classified as highly-risky assets, I don't
| see the problem. The problem of 2008 was in mislabeling highly-
| risky assets as OK assets.
| xxs wrote:
| Oh, if they classify them as any assets, they would be fully
| regulated.
| hackingforfun wrote:
| It's likely that the upcoming Bitcoin ETF was approved
| because it is based on Bitcoin futures [1], and since there
| is already an established regulatory framework for those,
| under the jurisdiction of the CFTC, it was allowed.
|
| The CFTC also said, in 2019, "virtual currencies, such as
| Bitcoin, have been determined to be commodities under the
| Commodity Exchange Act (CEA)" [2]. They also fined Kraken
| for offering margin to clients, but "failing to register as
| a futures commission merchant" [3].
|
| It appears the SEC also has jurisdiction over certain
| cryptos that have been determined to be securities as well,
| since they have raised several cases for those [4, 5, 6,
| 7].
|
| The IRS also considers virtual currencies to be property
| [8].
|
| Based on this, there is already regulation and asset
| classification already going on, although I do think it
| would be great to have more clarity and agreement between
| the different regulating bodies, regarding crypto, in the
| US. For now, maybe it's just that some cryptos aren't
| considered securities until they are called out to be, and
| the rest would be considered commodities, at least until we
| hear more about this from regulators.
|
| [1] https://www.cnbc.com/2021/10/15/bitcoin-etfs-may-
| finally-mak...
|
| [2] https://www.cftc.gov/sites/default/files/2019-12/oceo_b
| itcoi...
|
| [3] https://www.cftc.gov/PressRoom/PressReleases/8433-21
|
| [4] https://www.sec.gov/enforce/33-10715-s
|
| [5] https://www.sec.gov/news/press-release/2020-262
|
| [6] https://www.sec.gov/news/press-release/2020-338
|
| [7] https://www.sec.gov/news/press-release/2021-172
|
| [8] https://www.irs.gov/businesses/small-businesses-self-
| employe...
| wayoutthere wrote:
| Except this "crisis" won't take down the larger economy since
| people can't live in crypto. There was always a reasonable
| guarantee that the housing market would come back as the
| underlying assets had real world value in their own right, but
| the same is not true of a post-bubble crypto market.
| JumpCrisscross wrote:
| > _Where are the federal regulators in all this?_
|
| We're still building consensus. This is a multidimensional
| policy space; I doubt any single person knows even what all of
| those dimensions are. It's a type of problem our federal system
| of government excels at solving, albeit slowly. States will
| experiment with policy. Down the road we can consolidate their
| lessons. Only thing to keep an eye out for, in the interim, are
| systemic risks.
| joe_the_user wrote:
| A bubble bursting has to penalize someone. 2008 saw Lehman Bros
| destroyed and the larger players supported. Letting crypto
| investors suck it and supporting the rest of the market seems
| pretty politically defensible. Virtually all crypto investors
| have been warned - but yes, they'll complain.
| lkrubner wrote:
| As a point of comparison, look at https://fundthatflip.com/ (real
| estate lending) and then compare them to most of the crypto
| platforms. It's not the crypto that is the problem, it is the
| populist "robinhood" rhetoric that gets crypto into trouble.
| https://fundthatflip.com/ only works with investors who meet the
| SEC definition of an accredited investor (something like $2
| million in assets not counting the value of one's primary
| residence). In the whole of the USA, there are only 80,000
| accredited investors. The SEC is fine with those people taking on
| risky investments.
|
| If the crypto companies focused their efforts on accredited
| investors there would be less of a panic about crypto. But most
| of them come in with a populist rhetoric that sounds like a
| political movement: they want to bring high growth, high risk
| investing to the masses, they want to offer something highly
| speculative to the average person. In other words, they want to
| try to make an end run around the thousands of laws that we have
| in place to make sure that the average citizen doesn't get bilked
| in some scam.
|
| It's the pseudo-political element that is getting crypto into
| trouble. If they simply said "This is highly speculative and only
| accredited investors should look at this opportunity" then the
| crypto companies would be on safer legal ground. But it would be
| difficult to pump up the price of these cryptocurrencies if the
| bulk of crypto enthusiasts were taking such a moderate line.
| aqme28 wrote:
| Everything you said is correct, but I would really like for the
| SEC to move away from the "accredited investor" angle. I'm not
| convinced there's any real benefit to the populace to restrict
| a limited (not necessarily riskier) set of investments to rich
| people.
| joelbondurant wrote:
| Point deduction for denying the superiority of communist
| tyranny.
| toss1 wrote:
| The real benefit is that these investment vehicles can avoid
| the regulatory burden required to sell to the general public
| - which involves proving that you _ARE_ sufficiently low
| risk.
|
| Without providing that proof of lower risk (and a LOT more
| information), the tradeoff is that you can raise from
| accredited investors. It is one thing to take $500k from an
| accredited investor who might wince but can still take the
| hit if your investment opportunity fails, but quite another
| to take the same amount from someone for whom it is their
| entire life savings. Your failure then condemns them to a
| life of poverty and living on govt programs.
|
| Sure it seems nice and egalitarian for everyone to have the
| 'opportunity' to invest in riskier schemes, but history shows
| that the times it ends well do not offset the times that it
| fails.
|
| It seems every 3rd or 4th generation needs to learn for
| themselves. Banking and finance go off on a bunch of new
| ideas, there are systemic failures and boom/bust cycles,
| enough people realize that this unregulated wild west is a
| bad idea and put in regulatory fixes, it gets better, then
| after a couple of generations everyone forgets and says "why
| are all these damn regulations here keeping me from becoming
| wealthy?", starts dismantling them, nothing happens for a
| while, then the failures, boom/bust, etc start again, lather,
| rinse, repeat...
|
| See Chesterton's Fence [1]
|
| [1] https://www.chesterton.org/taking-a-fence-down/
| aqme28 wrote:
| I don't think Chesterton's Fence is a good analogy here.
| It's pretty obvious _why_ this restriction exists, it just
| doesn 't seem like it's worth the downsides (to me at
| least).
| dataflow wrote:
| Essentially you'd rather some people go broke at the expense
| of others (you?) having more of a chance to get rich, and
| others prefer nobody has a high chance of going broke _or_
| rich. I suppose there 's no objective way to settle this, but
| people have more of a human right to avoid poverty than to
| get rich, so the former is harder to justify.
| hackingforfun wrote:
| I agree that consumers should be educated that crypto is highly
| speculative.
|
| However, an accredited investor might just be someone who got
| rich through inheritance, i.e., not at all through their own
| doing, so I don't think that accredited investors necessarily
| know more about investing. They can, in theory, weather a loss
| more, depending how much they bet, although AFAIK there are not
| restrictions on them betting it all.
|
| People are allowed to buy lottery tickets. They are also
| allowed to bet it all at a casino. Why shouldn't someone be
| able to put even a small amount of money in crypto? Maybe it
| pays off for them, maybe it doesn't (just like lottery / casino
| / etc., and I think they have a better chance in crypto).
|
| That said I don't really like centralized crypto lenders like
| Celsuis, Nexo, etc. If anything, I think people have a better
| chance just buying crypto at spot price and not lending it out,
| although if someone really was set on lending out their crypto,
| they are better off with the decentralized lending
| alternatives.
| abecedarius wrote:
| > They can, in theory, weather a loss more, depending how
| much they bet, although AFAIK there are not restrictions on
| them betting it all.
|
| Exactly: being wealthier just means you can make bigger bets.
| It's rather common for athletes to go bankrupt after
| retirement.
| somethoughts wrote:
| The challenge is when enough uninformed investors get scammed
| at the same time then some politician is going to want to
| give them all a bail out. Think 2008 financial crisis and the
| subprime mortgage bailouts - I bet a handful of them knew
| that buying a house with their shaky credit was probably not
| a great idea but decided to YOLO it.
|
| Of course the corporation/vendor of the scammy investments
| will fold at that time, but the management will have long
| since pulled their money out and will be largely unpenalized,
| leaving tax payers to fund the bail out.
|
| That's not to say accredited investors don't get government
| bailouts when they play it to close to the fire, they do. The
| bailout is just done quietly in the background and nobody is
| the wiser...
| lacker wrote:
| _People are allowed to buy lottery tickets. They are also
| allowed to bet it all at a casino. Why shouldn 't someone be
| able to put even a small amount of money in crypto?_
|
| You can put money in crypto, though. Buy Bitcoin, buy
| Ethereum, there are plenty of ways to put your money in
| crypto.
|
| Here New York is going after companies like Nexo that pretend
| like their risky crypto product is just like a bank account
| that happens to pay higher interest. Look how they advertise
| it on https://nexo.io/ -
|
| _ISO 27001:2013 Compliant. Impeccable risk assessment, data
| protection, and enhanced cybersecurity_
|
| _$375 million insurance on all custodial assets_
|
| _Earn daily interest on your crypto_
|
| _Add or withdraw funds at any time_
|
| Personally, I find these to be misleading statements. You
| can't necessarily add or withdraw funds at any time because
| you depend on Nexo's solvency which is not guaranteed like it
| is for a bank account, their risk assessment in my opinion is
| not impeccable, et cetera.
|
| If Nexo is going to pretend they are as risk-free as a bank
| account, then it seems reasonable for New York to regulate
| their statements like they regulate bank accounts.
| manic85 wrote:
| I agree, Nexo/Celsius/Blockfi should not be going around
| saying they are "riskless". However, blocking out the
| majority of the general public from high yield investments
| is not the right move. Wealthy =/= sophisticated. If people
| want to take risk and get paid high yields in return for
| creating liquidity in emerging financial ecosystems, let
| them do it! Don't apply a 1930s frame work to a 21st
| century technology. I'm much more in favor of what Coinbase
| is doing - push for a seperate regulatory regime
| specifically designed to handle digital assets.
|
| For all those who try to compare this to subprime, there's
| two big differences here. First, decentralized lending is
| enforced by smart contract -> the banking apps dont take
| credit risk because they can auto liquidate defaulter's
| assets and collect a 10-20% liquidation fee for doing so.
| Second, decentralized lending apps max out at 60% LTV.
| People are either going to be safe and do 30-40% leverage
| which protects against 33-50% drops in the value of the
| collateral, or they are going get liquidated at 60%.
| There's no too big to fail here.
| logicalmonster wrote:
| > It's the pseudo-political element that is getting crypto into
| trouble. If they simply said "This is highly speculative and
| only accredited investors should look at this opportunity" then
| the crypto companies would be on safer legal ground.
|
| Why should some legal investments not even be theoretically
| available to non-wealthy people? This smacks of the highest
| sort of elitism to me.
| HillRat wrote:
| Because those legal investments are voluntarily deciding to
| adhere to a lower level of regulatory scrutiny in exchange
| for only being able to sell to wealthier and presumably more
| risk-aware investors.
| [deleted]
| nradov wrote:
| I know some people who became "accredited investors" through
| the simple step of lying about their assets. Obviously that's
| wrong, but many investment companies do little or no
| verification.
| cslarson wrote:
| The only way to build wealth is by investing. The SEC gate-
| keeping this is outrageous.
| serverholic wrote:
| It's sad you're getting downvoted. Right now our system is
| setup such that the rich and powerful get special privileges
| that the rest of us don't.
|
| They also abuse these privileges all the time.
| hayd wrote:
| 80,000 sounds way too low (since it's not $2m, it's $1m assets
| OR $200k (single) $300k (joint) income).
|
| "We estimate in 2020 there were 13,665,475 accredited investor
| households in America." https://dqydj.com/accredited-investors-
| in-america/
|
| I'd argue SEC _pushes_ people who aren 't accredited investors
| into riskier investments.
| bushbaba wrote:
| More than 80k people meet the accredited investor definition.
|
| " To be an accredited investor, a person must have an annual
| income exceeding $200,000 ($300,000 for joint income) for the
| last two years"
| BayAreaEscapee wrote:
| I don't disagree with your argument, but I think your statement
| "In the whole of the USA, there are only 80,000 accredited
| investors" is not quite right. According to this MSN article,
| "To be considered in the top 1% of net worth, a household needs
| combined assets totaling over $11 million." [1] That means
| there are about 3M households that have at least $11M.
|
| [1] https://www.msn.com/en-us/money/markets/what-net-worth-is-
| co...
| dataflow wrote:
| There are 120M households in the US, so you meant like 1M I
| think. I imagine not all of them are accredited investors,
| though maybe they could be if they tried to?
| dragonwriter wrote:
| > There are 120K households in the US,
|
| 122 _million_ , you mean. (The rest of your piece is
| consistent with that.)
| piker wrote:
| > In the whole of the USA, there are only 80,000 accredited
| investors.
|
| Incorrect. Maybe you're basing that number off the
| (alternative) 2 million in liquid assets, but the income
| threshold is something like 200k/year for 2 years. A quick
| google shows estimates ranging from 8%[1] to 13 million[2]
|
| [1] https://www.archerinvestors.com/accredited-investors/ [2]
| https://dqydj.com/accredited-investors-in-america/
| dataflow wrote:
| There's more to accreditation than just checking a box that
| you have the net worth. (And even then, not every household
| would have checked said box.)
| gfodor wrote:
| Is it really true only 80k citizens have 2m in liquid assets?
| pb7 wrote:
| Absolutely not. There are estimated ~100K people with $50M
| or more.[0]
|
| [0] https://www.statista.com/topics/3467/millionaires-in-
| the-uni...
| wly_cdgr wrote:
| Same bullshit as online poker. Just local warlords protecting
| their pile of coins
| ramesh31 wrote:
| >Just local warlords protecting their pile of coins
|
| Except the system we have has been put in place explicitly to
| avoid having _actual_ warlords protecting their pile of coins.
| Legal taxation based on rule of law enacted by democratically
| elected officials is the very basis of our society.
| graeme wrote:
| Due to poor redaction, possible to know names of companies.
|
| * Nexo and one other are banned.
|
| * Celsius and four others have been hit with extensive
| information requests due November 1st. Likely they will be unable
| to comply
| cheschire wrote:
| I'm interested what process you used. When I open
| cease_letter_redacted.pdf or informational_letter_redacted.pdf
| in Adobe Acrobat DC, and I begin typing letters to force the
| content out from behind a black box, the content is simply
| whitespace. Copy/paste into notepad reveals no content where
| the black boxes were.
|
| You're not just guessing, right?
| dogman144 wrote:
| It was fixed a few hours ago. The doc title was in the
| metadata. "Microsoft Word - <Celsius/Nexo> Letter..." showed
| up when you opened it from the link or download in a browser.
| graeme wrote:
| Yup, exactly this. The error has been fixed, but there are
| copies out there
| X6S1x6Okd1st wrote:
| What was the redaction failure?
| dogman144 wrote:
| Doc title was in the metadata until a few hours ago.
| "Microsoft Word - <Celsius/Nexo> Letter..." Showed up when
| you opened it from the link or download in a browser.
| epa wrote:
| A nice win for Gemini
| recursive4 wrote:
| And GUSD.
| dylan604 wrote:
| Is this like the Old West Sheriffs running people out of town?
| We're not really going to do anything except make you not our
| problem and leave it for the next guy/town/state/etc.
|
| Is that really a punishment? Is that really a deterrent for the
| next group to start something to run for as long as they can
| before they get noticed?
| knownjorbist wrote:
| You make it sound like they're doing something illegal or
| punishable. The state is just protecting the incumbent lending
| industry.
| JumpCrisscross wrote:
| > _make it sound like they 're doing something illegal or
| punishable_
|
| They are. Offering deposit-like products is highly regulated.
| Offering money market like products is highly regulated. It's
| illegal to circumvent those regulations while claiming some
| back-end magic makes you exempt.
| kabdib wrote:
| Er, no. NY shut down coinseed, which was definitely ripping
| people off.
|
| Why do we continue to pretend that the "crypto" industry is
| not absolutely chock full of scammers?
| fullstop wrote:
| Crypto is absolutely full of scammers, but head to a poor
| area and look at all of the payday loan fronts. Let's not
| pretend that the USD and existing banking industry are
| shining bastions of righteousness.
| elliekelly wrote:
| > Let's not pretend that the USD and existing banking
| industry are shining bastions of righteousness.
|
| They aren't. Far from it. Now imagine how badly they'd
| behave without any oversight...
| astura wrote:
| Payday loans are illegal in New York
| bigbillheck wrote:
| I think those payday lenders should be banned as well.
| fullstop wrote:
| Absolutely, but desperate people are desperate and will
| find even more unscrupulous people who would do more than
| charge them interest if the loan is not repaid.
|
| Understanding why they exist in the first place may be
| more important than banning them outright.
| toomuchtodo wrote:
| Where do people go if they can't get a payday loan and
| need those funds to make ends meet [1]? You have to
| understand why a fence exists before deciding how and why
| to tear it down. Payday loans are a symptom, not a root
| cause and not necessarily evil considering the risk they
| take on by issuing loans to exceptionally marginal
| borrowers.
|
| [1] https://www.journals.uchicago.edu/doi/10.1086/686033
| Hjfrf wrote:
| The borrower can tell their creditors that they will be
| unable to pay this month's electricity
| bill/rent/whatever.
|
| The creditor will take a loss (writeoff/reschedule) or
| seize collateral.
|
| It's better than having the same issue next month for a
| larger amount.
| toomuchtodo wrote:
| So is the argument it's better to have your utilities
| shut off and be evicted?
| munk-a wrote:
| To a lender that offers reasonable effective interest
| rates - the kind of lender that can't currently survive
| in the business space because such insanely exploitative
| arrangements are currently legal and muscle out more
| reasonable lenders.
| labcomputer wrote:
| Interest rates are mostly determined by two things: 1) in
| what other activity could I invest this money; and 2)
| what is the probability that I won't be repaid. Well,
| also a third thing: overhead to run the business.
|
| Payday loans are fundamentally unprofitable if they
| charge less than usurious rates of interest.
|
| First, the default rate is sky-high: News articles
| suggest that over _half_ of payday borrowers default
| within a given year.
|
| Second, the loan amounts are relatively small, but
| require a retail storefront and staff.
|
| Think about other types of lending: A mortgage is
| underwritten once per decade and involves 100's of
| thousands of dollars at once with a three decade term.
| The band will earn hundreds of thousands of dollars in
| interest over the course of the loan, so having a banker
| in a tailored suit spend a couple hours with you is a
| trivial cost. It's also secured by real property which
| can be repossessed in the event of a default.
|
| A credit card is underwritten once a decade. The small
| transactions are mostly automated and much of the risk is
| pushed onto the merchant. So, again, tens of thousands of
| dollars can be earned per account. Retail space is not
| required to scale the business. The default rate is
| higher and the loan is unsecured, so it carries a higher
| interest rate.
|
| Now look at a payday loan. Half of borrowers will default
| each year, and collection rates will be low (the
| borrowers mostly don't have assets to recover). The term
| is usually a few weeks, so it requires human interaction
| 12-26 times per year. The loan amounts are also small, so
| 1/26th of whatever a reasonable interest rate is isn't
| enough to cover defaults and all the manual processes.
|
| If you don't believe me, the above statements are
| trivially falsifiable: Just start your own payday loan
| company with "reasonable" interest rates and see how long
| you last.
|
| If the news articles reporting 50%+ default rates are
| true, your non-profit payday loan company need to charge
| at least 100% APR just to break even before overhead and
| cost of capital.
| yellow_postit wrote:
| In the US excited to see USPS head towards once again
| providing banking services to the underbanked [1] this
| was something very convenient in the UK [2]
|
| [1]
| https://www.washingtonpost.com/business/2021/10/04/usps-
| bank... [2] https://www.postoffice.co.uk/banking
| yxwvut wrote:
| I've enjoyed watching crypto acolytes gradually learning
| why the consumer protections of traditional banking and
| investment exist. Until regulation catches up there's bound
| to be a stream of unscrupulous scammers taking notes from
| the financial crises of the past.
| fennecfoxen wrote:
| > You make it sound like they're doing something illegal or
| punishable.
|
| You make it sound like New York General Business Law SS352
| doesn't exist.
| [deleted]
| colechristensen wrote:
| It's not a punishment. People not licensed to do business in a
| place are being told to stop. Maybe laws were broken that could
| be punishable but it would take a lot of money and effort and
| wouldn't necessarily serve the interests of the state or its
| people.
| vineyardmike wrote:
| > leave it for the next guy/town/state/etc
|
| To be fair, we're talking about New York State. Which is the
| center of finance in the US. The regulators in NY-State have an
| outsized influence on this sort of thing.
| syshum wrote:
| It is my hope that the regulators of NY-State continue to
| over-step their bounds, continue to believe their own
| rhetoric, and I will sit back and watch as NY-State ceased
| being the center of Finance in the US.
|
| It will be a good day indeed, to see NY Fall from that
| status.
| jimmaswell wrote:
| As someone from NY I'd love to see some of the overreaching
| government knocked down a peg. On that note, I'm excited
| for New York State Rifle & Pistol Association, Inc. v.
| Bruen coming up in a few weeks.
| klyrs wrote:
| Seems obvious that regulating finance within the state is
| precisely in-bounds. What has been overstepped, besides the
| sense of entitlement by unregistered crypto lenders to
| ignore the law?
|
| > New York's Martin Act sets forth a broad list of
| instruments that are declared to be securities and thus
| subject to its provisions: "any stocks, bonds, notes,
| evidences of interest or indebtedness or other
| securities...or negotiable documents of title, or foreign
| currency orders, calls or options therefor hereinafter
| called security or securities." As courts have stated for
| almost a century, the Martin Act is a remedial statute,
| intended to protect the investing public, which means that
| its provisions -- including those setting forth the
| definition of a "security" -- are to be given a broad
| reading. Indeed, those defined categories of instruments
| are not exhaustive; other instruments or arrangements can,
| and have been, deemed securities under the law
|
| Note that this doesn't just impact lenders based in NY, it
| impacts anybody lending to New Yorkers.
| ROARosen wrote:
| You can downvote all you want, but the fact is that New
| York is the most restrictive area in the US when it comes
| to cryptochoice[1][2].
|
| The US in turn, is up there as one of the worst countries
| for cryptochoice up there with Cuba, Crimea and Sevastopol,
| Iran, Afghanistan, Syria, North Korea, or Antigua. (Granted
| the US is there because of 'legitimate' SEC regulations,
| but ther is no reason NY should be more restrictive than
| the feds).
|
| [1] The ability of the indiviual to choose which crypto
| they want to buy and availability of them
|
| [2] https://help.ftx.com/hc/en-
| us/articles/360042412652-Location...
| woodruffw wrote:
| We're calling rampant securities fraud "cryptochoice"
| now?
| klyrs wrote:
| Like so many moths, angry at the glass, for keeping them
| away from the lantern's flame...
| breakingcups wrote:
| What else could he do? He knows they'll move anyway. Why call
| it anything else?
| JumpCrisscross wrote:
| > _What else could he do?_
|
| This is irrelevant. But she* [1].
|
| [1] https://en.wikipedia.org/wiki/Letitia_James
| JumpCrisscross wrote:
| > _We 're not really going to do anything except make you not
| our problem and leave it for the next guy/town/state/etc_
|
| That's fine. I was recently discussing the American financial
| system's exposure to Tether [1]. It appears there isn't much.
| _Ceteris paribus_ , when that blows over, it shouldn't hit us.
| It will hit the next guy, in the next town or state or country.
|
| [1] https://news.ycombinator.com/item?id=28882319
| EGreg wrote:
| Can someone explain why USDC or Tether is held to such a high
| standard ... 100% reserves, and they all have to be in cash
| -- while banks have fractional requirements that hover around
| 10% and since the pandemic have been essentially zero?
|
| Why the huge disparity? From an economic point of view, the
| bank is just as required to redeem its obligations as Tether.
| wmf wrote:
| Mostly people are just responding to Tether's own claims
| about being fully backed.
| graeme wrote:
| Banks have very specific regulations to comply with that
| are much much much stricter than anything Tether or USDC
| face.
|
| The better comparison for stablecoins are money market
| funds. The lockup of those caused the worst of the 2008
| financial crisis. _They_ also have much stricter
| regulations than stablecoins.
|
| Fitch today released an opinion that stablecoin
| liquidations could cause a similar sort of systemic risk.
| They need some kind of regulation. No stablecoin has even
| done an audit! (Attestations are not the same)
| thebean11 wrote:
| USDC certainly claims to be audited, by a big US
| accounting firm no less. Is there some nuance I'm
| missing?
| graeme wrote:
| > Is there some nuance I'm missing?
|
| Yup. They've had _attestations_. In those, an auditor
| just looks at an account at a moment in time. So you
| could, for example:
|
| 1. Get a loan
|
| 2. Put it in the reserve account
|
| 3. Ask accountant to verify the amount
|
| 4. Accountant attests to seeing money in the reserve
| account
|
| 5. Afterwards, move money out to pay off the loans
|
| Sound crazy? Tether actually _did_ this, it only came out
| in the NYAG settlement.
|
| USDC uses a US accountant, but nothing in the procedures
| they use would prevent such a scenario. The auditor
| merely relies on management assertions in an attestation.
| dmitriid wrote:
| The nuance is "claims". It's never been properly audited.
| airstrike wrote:
| You may be equating "audited financials" with the
| mountain of regulations banks need to comply with that go
| way beyond their financial performance.
| ac29 wrote:
| If they've been audited, they've never released those
| audits.
| bluecalm wrote:
| Main reason is that banks are more responsible with giving
| out loans. Those loans are assets. Of course once you start
| giving out loans like candy to people who should never get
| them who then use them to buy highly speculative assets
| then the whole idea goes to hell.
|
| With Tether they print it and give it out to their buddies
| for who knows what, maybe a pinky promise to repay some
| day.
| wpietri wrote:
| Because banks don't create their own currencies.
|
| The US dollar is backed the US. All banks are supervised
| and insured by that same government. If a bank takes on too
| much risk, a) there are people watching that, and b) the US
| can wind it up and pay everybody back. So a single bank
| failure causes approximately zero currency risk. As long as
| you stay under the FDIC limits, you'll get back every
| dollar you put in.
|
| Tether, on the other hand, is backed a bunch of shady
| characters who have been caught lying about what backs
| their currency. They claim it's 1:1 with US dollars,
| meaning that people buying Tether have no risk. But the
| more we learn about what they're doing, the clearer it is
| that it's not the case.
| floor2 wrote:
| Because banks are heavily regulated, professionally managed
| and back-stopped by the most powerful entities in the world
| (the governments of the countries of their operations).
|
| Tether by contrast is a pretty much an obvious ponzi scheme
| that everyone is just playing along with because they're
| making money and hoping they get out with profits before it
| implodes.
| przeor wrote:
| btw. isnt this story about USD I hear for last 25 years?
| Before it "implodes"? just thinking
| przeor wrote:
| How about DAI?
| legutierr wrote:
| DAI is mostly collateralized by USDC so there is a lot of
| overlap in the risk exposure of the two assets.
| przeor wrote:
| why someone would colletarize a stablecoin like USDC to
| generate less stablecoins like DAI? Where id the gain
| while on a dollar to dollar its close to 1:1 ratio all
| the time?
| legutierr wrote:
| It's not that DAI is over-collateralized with USDC, it's
| that among all the different collateral types, USDC is
| over represented. This Reddit thread provides a pretty
| good explanation as to what is going on:
|
| https://www.google.com/amp/s/amp.reddit.com/r/MakerDAO/co
| mme...
| [deleted]
| bmm6o wrote:
| Isn't Tether just being held to their own claims? They only
| need to be 100% backed because they say they are 100%
| backed.
| EGreg wrote:
| Seems there is a wider thing at play here
|
| https://www.prnewswire.com/news-releases/usd-coin-
| reserves-e...
| bingohbangoh wrote:
| But you forget about DeFi (decentralized finance).
|
| People are using DeFi to make degenerate bets on various
| crypto projects. That typically involves
|
| (1) buying tether, (2) using it in an overly collateralized
| loan to borrow tether, (3) then using that tether to buy
| another crypto, (4) watching/hoping the price of that go up
| (5) selling that corresponding crypto, locking in gains, and
| repaying the loan
|
| If tether drops dramatically in price due to a lack of
| confidence, these loans will be affected. Such crypto tokens
| may be bubbling up only because these DeFi loans are
| possible.
| arrosenberg wrote:
| It doesn't sound like the USD has a ton of exposure here,
| so how would it bubble up? Does a major bank (Citi, Chase,
| BofA, etc.) have a large position in Tether?
| JumpCrisscross wrote:
| > _how would it bubble up?_
|
| A recent fear was Tether holding dollar-denominated
| commercial paper. If they went under, they'd dump that
| paper. This happened in '08 with money market funds, and
| we passed a lot of regulation to ensure that failure mode
| can't happen again.
|
| Fortunately, to the extent Tether holds anything, it
| isn't cash or U.S. dollar commercial paper. So contagion
| vector contained.
| JumpCrisscross wrote:
| > _these loans will be affected_
|
| Which will wipe out those investors. Not anyone else.
| People are free to lose their own money. It becomes a
| regulatory issue when those losses cascade, or if someone
| who didn't realize they were taking those risks is forced
| to bear them.
| elliekelly wrote:
| I don't disagree with anything you've said but I do
| wonder whether the typical crypto "investor" does realize
| the risk. In many cases (like Tether, for example) I'm
| not sure the risk has been adequately disclosed prior to
| purchase.
| vkou wrote:
| Who is the typical crypto "investor", though, that is
| getting into these schemes?
|
| I personally know people who have gotten into the GME
| craze, I know people who are stupid enough to day-trade
| options, and I know people who spent a paycheck on buying
| dogecoin. They are all relatively normal people, and
| while some of them should _not_ have gotten into these
| transactions, given what I understand of their personal
| finances, I understand why this happens. They live in
| America, where nobody 's stopping you from spending your
| rent money on buying dumb meme stocks, and RobinHood has
| a cool mobile app for trading options, and maybe you win,
| or maybe you get burnt, it is what is, yolo, etc.
|
| But of all those people, I don't know of anyone who
| dipping their feet into borrowing tethers to trade crypto
| on margin, or investing into crypto ponzi schemes. Who,
| exactly, _is_ getting roped into that sort of thing?
| Posters on the crypto equivalent of r /wsb? Day-traders?
| Or is it Joe Average?
| rjbwork wrote:
| >I know people who are stupid enough to day-trade options
|
| Meaning buying and selling the same options contract in
| intra-day transactions?
|
| Or just retail trading options?
|
| They're two very different things and I think only the
| former is actually stupid.
| vkou wrote:
| There's so many ways to screw up buying or selling
| options, that I believe retail investors should stay away
| from them, period. There are a lot fewer ways to screw up
| buying stocks.
| bingohbangoh wrote:
| But that will affect the price of other crypto assets.
| How that manifests itself is complicated in a ~$1.5
| trillion market.
| zzleeper wrote:
| Is DeFi _SO_ large??? Stablecoins have a mkt cap of ~130bn.
| And it 's not like bitcoin (or the stock market), where you
| can start with 1000 tokens valued at $1 each, and then when
| the price increases suddenly the nominal wealth increases
| as well. These are stablecoins after all!
| osense wrote:
| DeFi isn't limited to stablecoins though. I think the
| current TVL (total value locked) across all DeFi has to
| be in tens of billions of dollars ATM, judging from the
| values I've seen on some of the more popular services.
| IncRnd wrote:
| > We're not really going to do anything except make you not our
| problem and leave it for the next guy/town/state/etc.
|
| No, it's not the Wild West, rather the opposite. These
| businesses need to be registered when operating in NY. Two that
| were not registered were directed to stop unregistered
| operation. Three others were told to "immediately provide
| information about their activities and products".
| purple_ferret wrote:
| Serious question: What's so onerous about the NY bitlicense? I
| find it hard to believe that a company like FTX, which is
| shelling out cash to name stadiums and make endorsement deals,
| can't pony up the money to get the license.
| buckie wrote:
| I looked into it. It is next to impossible to get. It doesn't
| take a crazy amount of money to get it, but from what I've
| experienced it looks like it takes a ton of wealth + the
| right connections + _Albany_ politics. And that was years
| ago, I assume it 's worse now. Moreover, there's no SLA for
| responding to the applications... so there are likely
| 500-1000 applications sitting in a box some where in Albany.
|
| Bitlicense isn't a disaster, but it's a huge problem if
| you're in the space that you really do need to be careful of
| crossing. Crypto has a meme factory but not a lobbying
| strategy, and even if it did it's up against two near
| immovable objects: old school finance lobbying and being an
| easy target/distraction in the press.
|
| We should just be thankful that Bitlicense wasn't adopted
| elsewhere and give up on NYC as a hub for this stuff. Until
| crypto grows beyond finance AND legal combined (legal will
| lobby with finance if asked) in terms of _who makes money in
| NYC_ -or- crypto allies itself with another major mover
| (maybe real estate), don 't expect things to ever change for
| the better.
|
| It's a shame really. NYC would be leading crypto if not for
| this law. But then again, NYC doesn't care because tech is
| probably the 5th or 6th largest revenue generator in the city
| and has few/no generation spanning connections to Albany.
| jjtheblunt wrote:
| what would "leading crypto" look like?
|
| (genuine question that i've thought about)
| wmf wrote:
| It looks like 100x leverage YOLO "trading".
| rafale wrote:
| A bitlicense won't allow 100x leverage. That's where they
| make a lot of money, liquidating newbies.
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