Australia's Federal Court has drawn a fine line between crypto yield products, determining that while products offering yield management require a financial services license, "pass-through" decentralized finance (DeFi) products may not.
In a ruling issued on February 9, Federal Court Judge Ian Jackson declared that Block Earner would be penalized for promoting an "Earner" product in 2022, which promised earnings on loans denominated in USD Coin, Bitcoin (BTC), Ethereum, and PAX Gold (PAXG), stating that it necessitates an Australian Financial Services License (AFSL).
However, Jackson did not categorize Block Earner's DeFi "Access" product in the same manner, stating that the product does not function under a managed investment scheme and thus does not require an AFSL.
Block Earner commented on February 9 that "the court's decision carries nuanced implications for Block Earner and the wider crypto industry in Australia," offering guidance on how Australian financial services laws apply to crypto-related products and services. The case was initiated by the Australian Securities and Investments Commission (ASIC), alleging that both Block Earner's Access and Earner products violated corporate law.
Piper Alderman digital asset lawyer Michael Bacina clarified in an interview that Access serves merely as an entry point to decentralized finance (DeFi).
"The Earner product entails a representation that the user's cryptocurrency will be utilized to earn rewards (with the user receiving a fixed amount of interest)," Bacina explained. Meanwhile, the Access product does not rely on Block Earner for returns and is "entirely dependent on Aave or Compound," he added. Bacina emphasized the importance of clear and consistent marketing and communication for Australian cryptocurrency businesses.
The operation period of Earner products was from March 17, 2022, to November 16 of the same year. Block Earner confirmed to Cointelegraph that it ceased the Earner product before the lawsuit commenced and that the findings will not affect any of its current products.
Block Earner hailed the dismissal of ASIC's case against Access as "a significant development that showcases how DeFi can coexist within Australia's regulatory framework," paving the way for further advancement and adoption of DeFi solutions.
Aaron Lane, a senior researcher at the Royal Melbourne Institute of Technology's Blockchain Innovation Center, anticipates that if the Australian Treasury's proposed legislation for the crypto industry is enacted, it is likely to impose licensing requirements on Block Earner. ASIC welcomed the decision as a step forward in safeguarding consumers from digital asset products.
ASIC urged companies offering cryptocurrency products to carefully assess whether their products qualify as financial products under the existing regime, emphasizing the need for firms to seek authorization if their product falls within the definition of a managed investment scheme.
