Full Federal Court Clarifies Regulatory Boundaries for Crypto Lending Products

UPDATE: The High Court has granted special leave to ASIC to appeal the decision described below.  ASIC’s grant of special leave is conditional on ASIC covering Block Earner’s appeal costs. The appeal will be heard on a date yet to be set by the High Court.

Introduction

The Full Federal Court’s recent decision in Australian Securities and Investments Commission v Web3 Ventures Pty Ltd [2025] FCAFC 58 is another important step in the regulation of cryptocurrency based products in Australia.

The ruling clarifies the application of the Corporations Act 2001 (Cth) to fixed-yield cryptocurrency lending services.  Interestingly, although crypto is usually referred to as currency, another recent but separate decision of the Federal Court recently confirmed that a crypto stablecoin is not money.[1]

This time the Court had to decide whether or not a fixed interest crypto loan was a financial product or an investment.  If so, then this would have meant the issuer was required to hold a financial services licence.   Specifically, the Court considered whether the product was any of the following:

• A managed investment scheme;
• A financial investment; or
• A derivative.

Background

Web3 Ventures Pty Ltd, trading as Block Earner, operated a platform offering various crypto-related services.  One of these was a product called Earner.

The Earner product allowed users to “loan” cryptocurrency (converted from AUD or provided directly) to Block Earner in exchange for a fixed interest return, paid in the same cryptocurrency. Block Earner on-lent these crypto assets to third-party partners, so as to generate a return.

Importantly, users were entitled to a fixed return regardless of Block Earner’s actual earnings from these activities.  Block Earner’s Terms of Use explicitly stated that users had no exposure to Block Earner’s lending outcomes and that the interest paid was not linked to the performance of those  lending activities.

The case

ASIC commenced proceedings alleging that the Earner product was a managed investment scheme; a financial investment; or a derivative.  ASIC claimed that Block Earner had contravened licensing and registration requirements by offering the product without an AFSL or registering it as a managed investment scheme.

In the first trial, the primary judge found that the product was regulated as a managed investment scheme and an investment facility.  For more information on the first decision, please refer to our Keynote here: The risks of operating unregistered financial products: ASIC v Web3 Ventures Pty Ltd [2024] – Keypoint Law.  There was an appeal to the Full Federal Court.

Key Legal Issues and the Court’s Reasoning

The Full Court overturned the primary judge’s findings and dismissed ASIC’s claims.  The decision turned on three core legal issues:

1. Not a Managed Investment Scheme

The Court held that the Earner product did not meet the statutory definition of a managed investment scheme, which are:

• Investors contribute money or money’s worth in exchange for rights to future benefits;
• The contributions are pooled together or used in a common enterprise to produce financial benefits for the investors; and
• Investors do not have day-to-day control over the operation of the scheme. Instead, a responsible entity manages the scheme’s activities, although investors may receive reports or have voting rights.

Instead, the Court found that

• Users did not acquire rights to benefits produced by a pooled scheme.  There was no intention to pool user contributions to generate financial benefits for members.
• Rather, the fixed interest return was a contractual entitlement, not contingent on the success of Block Earner’s business.

The Court emphasised that the Terms of Use were determinative and that any representations on the website (e.g., FAQs) did not override the express contractual disclaimers.

2. Not a Financial Investment

The Court also found that the product was not a financial investment.  Under the Corporations Act, a financial investment will exist where a person makes a contribution that is used to generate a return. Instead, the Court found:

• Block Earner used the funds to generate returns for itself, not for users;
• Users had no rights to participate in or benefit from Block Earner’s lending profits;
• The arrangement resembled a loan agreement, not an investment.

The Court rejected ASIC’s argument that users’ intentions could be inferred from website representations, noting that users had explicitly agreed to terms disclaiming any investment purpose.

3. Not a Derivative

ASIC also argued that the product was a derivative because the final payout (in AUD) varied based on the exchange rate between cryptocurrency and AUD.  Under Australian law, a derivative is a financial arrangement whose value is based on the value of something else—such as an asset, rate, index, or commodity.

The Court held this product was not a derivative, because:

• Conversion to AUD was optional, not inherent to the product;
• The Exchange service was a separate arrangement from the Earner product;
• Users could elect to receive their returns in cryptocurrency, undermining ASIC’s claim that the product’s value was derived from an external reference.

Conclusions and Takeaways

We think there are some important takeaways from this case, including that:

• it shows the importance of contractual terms and user rights in determining whether a product is covered by the financial services laws. Businesses should ensure that their terms of use clearly define the nature of the product and disclaim unintended investment features.
• In this case, the contractual terms showed that the fixed-yield crypto lending arrangement was outside the scope of the Corporations Act because it did not involve pooled investments, derivative pricing mechanisms, or expose the investor to business performance.

What was not discussed in the case, but is interesting to think about, is whether the product could have been characterised as consumer finance, which is regulated under a separate body of law – the National Credit Code.  This Code regulates the supply of some types of ‘credit’ to consumers, where ‘credit’ involves the deferral of a debt.   ‘Debt’ is not defined but is generally understood to mean where is one person has a legal obligation to pay money (or money’s worth) to another; for example, a loan.

Because cryptocurrency is not usually thought of as being money, then it follows that some crypto products will not be regulated as either consumer finance (i.e. a consumer loan) or an investment (as in this case).   It would seem reasonable to expect this regulatory gap will be closed in the not too distant future, and there is likely to be plenty of discussion ahead as to what form that regulation should take.

In the meantime, this case highlights the need to carefully review crypto product documentation to ensure it achieves the desired legal characterisation.

[1] Please refer to Australian Securities and Investments Commission v Wallet Ventures Pty Ltd [2025] FCAFC 93, which we discuss here: Federal Court Clarifies Meaning of “Debenture” in Crypto Context – Keypoint Law