BlockFi scores surprise Money Services License in Iowa, but its fate hangs in the balance

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Troubled digital currency lending firm BlockFi has announced a surprise Money Service License in Iowa. The license comes just two weeks since the firm forked out close to a million dollars to the state’s regulator for breaching securities regulations.

BlockFi took to Twitter to announce the new license, revealing that its users in Iowa could start with trading stablecoins and instantly transfer their funds via the Automated Clearing House network. The firm didn’t disclose the extent to which the new license covers its more controversial products, including its yield-generating product, which has landed it in regulatory trouble in over a dozen states.

We're excited to announce that we’ve received our Money Services License in Iowa.

Iowa residents can now trade stablecoins on our platform and instantly transfer funds via ACH. pic.twitter.com/sNEFIlCeWY

— BlockFi (@BlockFi) June 28, 2022

As CoinGeek reported, BlockFi paid $943,000 to the Iowa Insurance Division (IID), the state’s securities watchdog, two weeks ago. IID claimed the firm had violated the Iowa Securities Act by selling unregistered securities in the state. It also engaged in misrepresentation and omission of material facts by claiming that its loans were over-collateralized.

The fine in Iowa was part of the mega $100 million settlement between the lending firm and the Securities and Exchange Commission (SEC). While the SEC took half the fine, BlockFi was ordered to pay the rest to the 32 states that had been going after it for securities violations, one of whom was Iowa.

As big as they are, regulatory troubles may be the least of BlockFi’s problems. The lender has taken a huge blow from the market downturn in the past few months. Having been paying extremely high returns to their users, BlockFi and co. have found themselves facing liquidity risks as many users cashed out. Celsius, which was even bigger than BlockFi, looks to be folding, having halted withdrawals earlier this month.

On its part, BlockFi turned to the “crypto lender of last resort” FTX exchange, and according to an earlier announcement, it would be receiving a $250 million credit facility from the Sam Bankman-Fried-led exchange. 

However, the Wall Street Journal has reported that SBF is planning on buying a majority stake in the exchange instead. This has unsettled current investors who would be the biggest losers if such a deal materialized, with Morgan Creek, a VC firm, reportedly putting together a bid of its own to buy the lender. For now, BlockFi’s future is uncertain.

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