CryptoFi CEO Responds to Binance & Coinbase SEC Charges

This week, the Securities and Exchange Commission (SEC) filed lawsuits against Binance and Coinbase, the two largest crypto exchanges in the United States. According to the SEC, Binance and its founder, Changpeng Zhao have been accused of mishandling investor funds, operating as an unregistered exchange and breaking a variety of securities laws. The next day, Coinbase was accused of breaching the law by enabling its clients to profit from investments in crypto tokens that the government believes should have been registered as securities, in addition to profiting from staking, a mechanism for users to earn yield on their crypto investments.

It is evident that regulation by enforcement is pushing investment in blockchain and digital asset technologies offshore. Additionally, by not offering clear guidelines for crypto platforms to operate, consumers are ultimately hurt, as we’ve seen with the collapse of so many exchanges in the past 12 months. It’s essential that our regulators put forth a clear set of guidelines for crypto platforms to operate under to drive innovation and protect consumers in the United States. CryptoFi welcomes regulation, and this sentiment has been rooted in our philosophy and mission of serving consumers in a regulated fashion since our inception. 

CryptoFi’s Position/Benefits

CryptoFi’s position is and always has been that the only truly safe and secure way to buy, sell, and hold crypto assets is through a highly regulated and trusted bank or credit union – a secure and regulated institution that people trust. CryptoFi partners with qualified custodians to store cryptocurrency, and every custodian is regulated, audited and fully insured, protecting institutional and consumer assets.

CryptoFi protects its consumers and partners by not offering yield products that could be considered securities by the SEC, which is one of the indictments against Coinbase. In addition, CryptoFi does not offer any coins that could be considered securities. We encourage our partners to offer Bitcoin (BTC) only, or possibly consider offering Ethereum (ETH), Litecoin (LTC), Bitcoin Cash (BCH) and Stellar (XLM) — all coins that were not included in the SEC's filing against Coinbase.

How we’re Different from Exchanges 

From the beginning, we intentionally built CryptoFi’s solutions to fully address regulatory concerns. CryptoFi’s cryptocurrency management platform is purpose-built to safely serve banks and credit unions, regardless of the events in the market.

• CryptoFi has intentionally no exposure to exchanges
  All client funds held at our custodians are and remain segregated from the custodian’s corporate assets

• Our best-in-class qualified custodians are highly regulated chartered trust companies
  Our custodians are highly regulated financial entities subject to the rules and regulations of, and audited by, the banking regulators in their state. By law and regulation, our custodians must keep client assets segregated from corporate assets — protecting the customers interests in the event of an institutional failure or bankruptcy.

• Our custodians are insured
  Digital insurance can cover the integrity of the assets in the event they are lost, stolen, or hacked while within the custodian’s care.

• Our custodians utilize MPC wallet technology, delivering the security of cold storage while providing the mobility of a hot wallet
  This level of security ensures that the chance of hacking or theft is minimized 

• None of our custodians provide credit nor do they lend out consumer’s crypto at any point
  Funds held at our custodians are never used for lending purposes or as leverage for trades

• All transactions executed through our custodians are 100% pre-funded, and our custodians are full-reserve custodians
  All transactions performed at our custodians are essentially ‘paid for’ fully at the time the transaction is conducted. All crypto is held 1:1 with actual reserves.

• CryptoFi’s Proof of Reserve feature provides for on-chain digital asset balances held in the custodial wallets to validate consumer balances regularly
  CryptoFi audits each custodial wallet to ensure actual balances match expected deposits/balances

These features of the CryptoFi product line have been in place since we designed our market offerings. It has long been our belief that regulated financial institutions —  banks and credit unions — are the best place for most consumers to manage their cryptocurrency, and our systems deliver opportunity, safety, and compliance across a wide spectrum of crypto services for consumers. 

The response to these events will shape the future of digital assets. It is imperative for financial institutions to be prepared for digital asset offerings. Members and customers deserve a safe and secure place to invest. CryptoFi is here to help your institution capitalize on the future that crypto offers banks and credit unions in a safe and secure manner. As we move forward, offering cryptocurrency within regulated financial walls is the answer to de-risking and protecting members and customers' assets. 

We look forward to serving our current and future clients. Please reach out directly if you have any questions.

Kian Sarreshteh
CEO, CryptoFi