Original author: Gary Gensler, chairman of SEC

Original translation: Wu Shuo blockchain

Even with the emergence of new technologies, the securities laws protecting investors will continue to apply.

What is the relationship between automobile manufacturers and crypto lending platforms? Consumers and investors should be protected whether they are cars or investment vehicles.

In September 1966, President Lyndon Johnson signed the national traffic and motor vehicle safety act. Nearly six years later, safety belts and other basic safety functions are still standard. Although there are many innovations in automobile technology, this is indeed the case. Whether the car uses gasoline or electricity, the driver and passengers should be protected.

Similarly, the Federal Securities Act signed by President Franklin Roosevelt during the great depression was designed to protect investors. There is no reason to treat crypto market differently from other capital markets just because it applies different technologies.

Recent market events show why it is important for crypto companies to comply with the securities law. Some crypto lending platforms have frozen investors' accounts or gone bankrupt directly. When the platform goes bankrupt, these investors have to queue up in court.

Consider this assumption: the app run by Bob can increase the rate of return by 4%, 7% or 19%. Alice and millions of daily investors put their assets in the app. Investors benefit from understanding Bob's reasons for claiming that he will provide a certain return. If an investment sounds incredibly good, it may be true. Alice can decide whether to invest based on these disclosures.

These disclosures help her understand what Bob has done to her assets. Is he trading? Does he lend his assets to other investors? Is he running a hedge fund? How does he fund the promised return and what risks does he take?

It is worth noting that it does not matter what kind of assets Alice has invested in Bob's App - cash, gold, bitcoin, tmall or anything else. Bob's decisions on these assets determine what protection the law provides.

In addition, depending on how Bob uses Alice's assets, he may also run an investment company, such as a mutual fund. In this case, Bob will have to provide additional guarantees, which makes it more difficult to cheat investors.

Bob can't escape these tried and tested investor protection measures by putting new labels on products or promised benefits. He may refer to it as an interest, income, income or annualized income award. He may say that his app is a lending platform, a cryptocurrency trading platform or a decentralized financial platform. In decades of cases, the Supreme Court has made it clear that the economic reality of a product, not its label, determines whether it is a security under the securities law.

The US Securities and Exchange Commission confirmed this in its recent agreement with blockfi, a crypto lending platform. The company borrowed more than $10 billion in crypto assets from 570000 investors, providing them with variable interest rates in return. This makes the blockfi interest account, the loan product it provides to investors, essentially a security. Blockfi aggregates these assets, packages them for lending to institutional borrowers, and uses them to invest in other securities. This makes blockfi an investment company.

It is not a problem that blockfi borrows cryptocurrency here. In fact, you can replace "cryptocurrency" with any other asset. The question is what it did with the borrowed assets, and what it did as a company: provide investors with the required disclosure. Abiding by our laws can protect the investing public. Unfortunately, some platforms that provide encrypted loans do not comply.

We reject the idea that crypto lending is not regulated. In fact, these rules have existed for decades. Some encryption platforms do not follow the rules. Non compliance is not an inevitable result of the encryption business model or the underlying encryption technology. However, these platforms seem to be saying that they have a choice - or worse, say, "catch us if you can.".

As I said in my speech last year, "make no mistake: if a lending platform provides securities, it will be regulated by the sec." In many cases, the Commission and state regulators have addressed the issue of how the relevant case law is applied when it comes to crypto assets and crypto lending.

Just as car manufacturers need to add safety belts, compliance with the securities laws is costly. In any case, platforms that provide crypto lending need to comply, not only because it is a law, but also because it helps protect investors and increase trust in our market.

Fortunately, there is a way forward. I encourage platforms providing encrypted lending to come in and communicate with SEC staff. Making these platforms comply with the securities law will benefit both investors and the crypto market.

At the same time, the SEC will act as the police to supervise the encryption market. Like car safety belts, we need to make investor protection the standard of the crypto market.