Block Earner ruling delivers court distinction on crypto-yield products

The NFT Unicorn c1668fe6-773d-4201-8f1f-564e7db437ae Block Earner ruling delivers court distinction on crypto-yield products Crypto News

An Australian federal court has seemingly made a distinction between crypto-yield products in Australia — ruling that products that promise a managed yield will require a financial services license, while “pass-through” products will not.

In a Feb. 9 order, federal judge Darren Jackson judged that Block Earner will be subject to penalties over the offering of its “Earner” product in 2022 — which offered yield for loans denominated in USD Coin (USDC), Bitcoin (BTC), Ether (ETH) and PAX Gold (PAXG), explaining that it needed to obtain an Australian Financial Services License.

“Block Earner does not hold or have the benefit of an [Australian Financial Services License] and has never done so,” said Jackson.

However, Judge Jackson refrained from lumping Block Earner’s Access product into the same boat, explaining that it didn’t operate under a managed investment scheme and therefore no AFSL was required.

The case was brought by the Australian Securities and Investment Commission (ASIC), which claimed both Block Earner’s Access and Earner product violated corporation laws, and the rulings could draw a line in the sand on how Australian regulators could approach crypto-yield products.

In an interview with Cointelegraph, Piper Alderman digital asset lawyer Michael Bacina explained that Access was merely a pass-through to decentralized finance (DeFi).

“The Earner product involved a representation that user’s crypto would be used to make a return (but users would only be paid a fixed interest amount),” said Bacina. Meanwhile, the Access product doesn’t rely on  Block Earner making a return at all and is “completely dependent on Aave or Compound,” he added.

The most important detail to scrutinize lies in how these products are marketed, Bacina stressed.

“The takeaway for Australian crypto businesses is how important it is that marketing and representations clearly align and that the features of products are very carefully considered.”

The Earner product operated from March 17, 2022, to Nov. 16 of the same year.

Block Earner confirmed to Cointelegraph that it ceased the Earner before proceedings commenced and that the findings do not affect any of Block Earner’s current products.

Senior Research Fellow Dr. Aaron Lane of RMIT’s Blockchain Innovation Hub believes the Treasury’s proposed legislation for the crypto sector is likely to impose licensing conditions on Block Earner, should it be passed.

ASIC will now seek orders from the Court imposing pecuniary penalties. The proceedings have been listed for a case management hearing at 9.30 am on March 1, 2024.

Related: Australian financial regulator sues eToro over ‘volatile’ trading products

ASIC said the decision was a step forward in protecting consumers from digital asset products.

“ASIC remains concerned that consumers do not fully appreciate the risks associated with products involving crypto-assets and today’s decision is an important step forward to ensuring there are appropriate protections for consumers.”

The securities regulator called on firms offering cryptocurrency products to “carefully consider” whether their offerings constitute financial products under the existing regime.

If products do fall under the definition of a managed investment scheme, firms should seek licensing prior to offering them, ASIC stressed.

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Source: Cointelegraph