SEC moves against Genesis and Gemini for Crypto Earn programs

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What happened

The Securities and Exchange Commission (SEC) accused crypto exchange Gemini and crypto lender Genesis of selling unregistered securities last week. The Gemini Earn program had allowed users to earn interest by lending their crypto assets through Genesis. However, last year Genesis froze withdrawals on its platform, leaving around 340,000 Gemini Earn customers unable to access around $900 million in assets.

So what

It’s unclear whether this move will help Gemini Earn customers get their money back. But for crypto investors, the dangers of crypto lending platforms have never been more apparent. Whatever crypto exchange you use, if you earn interest, make sure you understand where that money is coming from.

The SEC is pursuing lawsuits against several crypto lenders on the grounds that these interest-bearing accounts are a type of security. There are strict rules about how securities can be bought and sold, enforced by the SEC. This includes fully informing investors of the risks involved, which the SEC says Gemini and Genesis failed to do.

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When you put your money in an interest-bearing savings account, there are rules about what the bank can do with your funds. There are also bank collapse protections, such as FDIC insurance. For brokerages, the Securities Investor Protection Corporation (SIPC) covers investors against business bankruptcy. While some crypto platforms have third-party insurance and some US dollar deposits are covered by FDIC insurance, many assets on crypto platforms are unprotected.

“The recent collapse of crypto asset lending programs and the suspension of the Genesis program underscores the critical need for platforms offering securities to retail investors to comply with federal securities laws,” said Gurbir S. Grewal, director of the SEC’s enforcement division.

Tyler Winklevoss, one of the founders of Gemini, hit back at the SEC on Twitter. He said Gemini has been in discussions with the SEC about the Earn program for more than 17 months. “They never raised the prospect of enforcement action until AFTER Genesis suspended withdrawals on November 16,” he said.

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start now what

When investing in crypto, there are not as many guarantees as you would get with traditional finance. Be aware that there are big differences between the following crypto accounts, and each offers different levels of risk:

Custody Wallets: If you leave your assets on the platform where you purchased them, they will usually be held in a custodial wallet. If the platform fails, your account may be frozen and you may not be able to access your money. Indeed, your funds could be blocked in a bankruptcy procedure. Staking Accounts: Some cryptocurrencies, known as proof-of-stake cryptos, pay out rewards to token holders who agree to have their coins staked to help secure the blockchain. There are different ways to stake crypto, but staking is often a safer way to earn rewards than lending crypto. Lending-earning accounts: The idea behind crypto lending is to take the middleman out of lending. Essentially, you lend your crypto directly and receive the interest. Unfortunately, it is not always clear what risks are taken with your assets or to whom they are lent. Non-custodial wallets: This is a type of crypto wallet that you control. Unlike a custodial wallet, you are responsible for your funds and there is no risk of loss if your exchange crashes. That said, the learning curve is steep and if you lose your password or seed phrase, you could also lose access to your crypto.

Don’t assume your funds are safe. Instead, consider moving your assets to a crypto wallet you control, or at least removing them from crypto lending systems. Crypto volatility is risky enough without adding the risk of platform failure.

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