Crypto Yield Controversy Settled: What the Federal Court Decided

• The structure of Finder Earn makes stablecoins not money in a legal sense.
• The boundary of crypto asset regulation becomes clear with the judgment.
• A major catalyst for fintech companies working on yield-based crypto solutions.

Citing an appeal by the Australian Securities and Investments Commission (ASIC), the Federal Court of Australia has made its position clear: it agrees with fintech company Finder.com that their crypto yield product, Finder Earn, is not a financial product under Australian law.

In a previous ruling, the court upheld the fact that Finder Earn, which let users convert Australian dollars into stablecoins and earn 4-6% interest per year, did not constitute a debenture or any other type of financial instrument that necessitated an Australian Financial Services Licence. The ruling concludes a nearly three-year court struggle that entailed whether crypto yield programs were regulated in Australia.

A landmark ruling reshaping crypto regulation

Finder Earn was a stablecoin project which operated between February and November 2022 and enabled customers to sell Australian dollar to TrueAUD stablecoins and deposited these at the Finder Wallet platform in exchange of yield payments. TrueAUD is a 1:1 pegged currency to the Australian dollar and the Federal Court had concluded it was a cryptocurrency and treated as property-not legal money. Accordingly, transactions of users were not deposits or money loans as in Corporations Act 2001 (Cth).

The judges stressed that the interaction of customers did not concern the lending of money but the transfer of the ownership of a fungible intangible asset. It was more of a similarity to securities lending, whereby a contract compels the re-delivery of the equivalent property and not a loan payable in money. The decision dismissed the ASIC opinion that Finder Earn had produced a debt instrument that was governed by an Act.

A spokesperson of Finder.com, Fred Schebesta, called the ruling a milestone in the fintech of Australia. Since there is a demand for safe and regulated access to new crypto investment opportunities, he thinks it’s a win for fintech in Australia overall, not just for Finder. Schebesta pointed out that Finder Earn was created with transparency and integrity, and was a “regulatory pushback against innovation”.

Federal Court Rejects Claim of Money Lending to Finder

The main factor that resonated with the court was that the clients first invested Australian dollars into their Finder Wallet accounts which they used to acquire the TrueAUD stablecoins. These stablecoins were then sent to Finder Wallet to the benefit of the investor and then after the Earn Term equivalent stablecoins together with the returns are credited back to the customer. The court clarified that the transfer of cryptocurrencies did not constitute a deposit or loan of fiat currency to Finder, but rather the transfer of ownership of an interest in the underlying asset.

The court also indicated that customers could still do other things such as using other cryptocurrencies, taking out their money or just waiting in their wallets with Australian dollars without interacting with the Earn product. This elasticity opposed the argument that the whole process was a single transaction of loan or deposit.

The appeal of ASIC called into question whether the whole sequence ought to be regarded as one arrangement under section 761B of the Corporations Act, which was overruled by the court. The transaction between the parties could not reasonably be regarded as a single scheme, including the distinct parts of depositing the Australian dollars, converting into TrueAUD, and giving away corresponding stablecoins to Finder. The nature was determined by the legal definitions between money and property, and the court was categorical that TrueAUD was not money.