Regulators rush to catch up with DeFi startups and crypto-backed lenders like BlockFi, which now touts $10B+ in assets, 450K+ clients, and licenses in 28 states
The boom in companies offering cryptocurrency loans and high-yield deposit accounts is disrupting the banking industry and leaving regulators scrambling to catch up.
New York Times
Context & Ripple Effects
A day after its $10B-plus profile, BlockFi sits at the center of a regulatory gap story: a lender offering loans against digital collateral in minutes, licensed state-by-state but operating outside the banking rulebook. The piece lands mid-boom — before the crash coverage, the SVB finger-pointing, or the FDIC's eventual green light.
What makes it matter is who is on the other side of the gap. Banks that initially dismissed crypto are already experimenting with it and pressing regulators to strip lenders like BlockFi of their cost advantage, so this isn't a fringe-versus-system fight anymore — it's an incumbency dispute with regulators as referee.
First-order effects
Regulators must decide how to treat a lender with $10B+ in assets and 450K+ clients whose deposit-like high-yield accounts fall outside federal banking supervision — BlockFi's 28-state licensing patchwork becomes both its shield and its exposure.
Crypto-backed lenders gain deposits at yields banks can't match, pulling retail money out of insured accounts into uninsured ones right now.
Second-order effects
Banks respond not by matching yields but by lobbying for rules that deny crypto lenders their 'unfair' regulatory arbitrage — turning compliance costs into a competitive weapon.
State-by-state licensing becomes the de facto growth constraint: expansion into each new jurisdiction forces BlockFi to negotiate terms regulators are still writing.
If the pattern holds, the endpoint is convergence rather than expulsion — the FDIC eventually permitting banks to engage in crypto activity outright — collapsing the arbitrage that made lenders like BlockFi possible.
The trend: Crypto lending is replaying shadow banking's classic arc — scale first, rules after — forcing a choice between cracking down on the newcomers and letting regulated banks into the same business.
1/ @NYtimes story on #crypto/#banking deserves a thoughtful reply. Issue isn't black & white: anti-crypto forces try to paint us all w/ a broad brush. Bad actors deserve to be called out, but the article ignores fact that regulatory-compliant firms exist. https://www.nytimes.com/…
Thanks to @CaitlinLong for thoughtful commentary on a bit odd @NYtimes front page #crypto story. Nothing new, a little skewed, not overly insightful and sorely lacking expertise. Were the reporters expecting some breaking news that didn't come this week? https://twitter.com/...
Haven't paid attention to crypto lately? you can start here. As a historian, I am struck by the article's use of “traditional”—yes, FDIC insurance is a “tradition” but one that goes back only to 1930s. “Traditional chartered banks” have state histories https://www.nytimes.com/...
This Sept 5 @NYTimes article is mandatory reading. Front page print edition. https://www.nytimes.com/... Observe how they cast the issue as one of “protecting the public” when what they mean is protecting the fiat banking system. It cannot be protected, for it is already over.
The rapid move by cryptocurrency into banking is setting off alarms in Washington. There's a surge in crypto platforms offering bank-like services, giving out billions of dollars in loans and super high-yield on deposits—all without FDIC insurance. https://www.nytimes.com/...
The boom in companies offering cryptocurrency loans and high-yield deposit accounts is disrupting the banking industry and leaving regulators in Washington scrambling to catch up. https://www.nytimes.com/...
Spot the contradiction in the @nytimes 1. Don't use stable coins because they aren't backed by anything. 2. Ban banks from holding deposits backing stable coins. https://www.nytimes.com/... https://twitter.com/...
Shadow banking, rampant speculation, poor regulation and zero consumer protections—if memory serves, those were all key ingredients to the 2008 financial crisis. https://www.nytimes.com/...
“in California, where BlockFi first sought a lender's license, officials initially advised it to instead apply for a pawnbroker license” https://www.nytimes.com/...
The entry of crypto into banking is disrupting the world of financial services so quickly and unpredictably that regulators are far behind, potentially leaving consumers and financial markets vulnerable. https://www.nytimes.com/...
JUST POSTED: Federal banking regulators are a cautious bunch, careful re every word to avoid unintended market shifts. Yet they've offered repeated warnings recently re potential economic threat presented by cryptocurrency's so-called stablecoins What's up?https://www.nytimes.com…
Preventing users from getting token airdrops and earning revenue from non-custodial and immutable smart contracts is not “protecting investors,” it's protecting the establishment and financial rent-extracting middlemen through regulatory capture https://www.nytimes.com/...
Cryptocurrency was created, in part, to break free of sovereign control and the dollar. But now cryptocurrency coders have built a parallel crypto banking system where a dollar-based “stablecoin” is king. And the risks are real—and largely unregulated. https://www.nytimes.com/...