WASHINGTON, D.C.—Benjamin Schiffrin, Director of Securities Policy for Better Markets, issued the following statement in connection with Better Markets’ new Fact Sheet, “Crypto Lending Poses Huge Risks for Retail Investors”:   

“Three years ago this week, crypto lender Celsius Network filed for bankruptcy. Despite promising investors huge interest payments, Celsius’s investments went bad in the volatile crypto marketplace, and it became unable to meet redemption requests from customers. Celsius’s customers lost $5 billion as a result, and the crypto lending industry imploded.  

“Now, as the Trump Administration eliminates all guardrails around the crypto industry, crypto lenders are making a comeback. Decentralized finance (DeFi) applications purportedly make it less risky for customers to lend their crypto. And a new type of crypto lending has also emerged, as firms now allow retail investors to use their crypto as collateral for loans. Despite the hype, it’s not clear these products are any safer for retail investors.   

• Crypto lenders, including in DeFi, have the same business model as banks, but are not subject to banking regulations, so there are no capital requirements, no bank examiners, and no FDIC insurance.  

• DeFi applications use smart contracts that are subject to bugs and hacks.  

• Crypto’s volatility may cause borrowers, even with DeFi, to be unable to repay lenders.  

• Customers who use their crypto as collateral for loans can face liquidation if crypto’s volatility causes the value of their collateral to crash.

• Customers may face predatory interest rates on their crypto-backed loans. 

The fact sheet is available online here.  

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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org.