Crypto clarity: Court rules Block Earner did not breach financial services laws
On 22 April 2025, the Full Federal Court delivered its much-anticipated decision in Australian Securities and Investments Commission v Web3 Ventures Pty Ltd [2025] FCAFC 58, overturning earlier findings that Web3 Ventures Pty Ltd (trading as Block Earner) had breached financial services laws.
This is the third major decision in the ongoing legal battle between ASIC and Block Earner, following earlier judgments on liability and penalty relief, which we have covered in our previous insights here and here.
Key takeaways
- Not all fixed interest crypto lending products are automatically financial products. If a user receives a fixed return based on a contract – not tied to the provider’s investment performance – it’s less likely to be classified as a financial product.
- Legal rights matter more than broad characterisations. The Courts will focus on what rights the product actually gives users, rather than ASIC’s broader view of how it functions in practice.
- ASIC may need to rethink its enforcement approach. After failing to make it’s case – the regulator may shift its focus to law reform.
- Regulatory guidance to be reviewed. ASIC’s draft update to ASIC Information Sheet 225 (via ASIC Consultation Paper 381) may need revision in light of this decision.
Background
In February 2024, the Federal Court found that Block Earner’s ‘Earner’ product was both a managed investment scheme and a financial investment under the Corporations Act 2001 (Cth) (Act), and had been offered without an Australian Financial Services Licence (AFSL).
However, the Court later chose not to impose financial penalty, penalty under s 1317S of the Act, noting Block Earner’s good faith and the uncertainty in how the law applies to digital assets.
ASIC appealed the Court’s decision to waive penalties. Block Earner cross-appealed, arguing that the ‘Earner’ product should never have been considered a financial product in the first place.
Appeal judgment
On 22 April 2025, Justice’s O’Callaghan, Abraham and Button sided with Block Earner. They allowed the cross-appeal, dismissed ASIC’s appeal, and set aside all previous findings of contravention.
Key findings of the Court included:
- Not a managed investment scheme: Although customers contributed funds and received fixed interest payments, they weren’t entitled to any benefits arising from pooled investments or business activity as required under s 9(a)(i) of the Corporations Act. The fixed return was a standalone contractual obligation.
- No shared benefit or risk: Block Earned used the funds at its own discretion and any profit or risk remained solely with the company. The Court highlighted there was no pooling and that customers were not exposed to the success of failure of the company’s lending decisions.
- Not a financial investment under the Act: The product was not a financial investment under s 763B of the Act. The Court rejected ASIC’s argument that the fixed-yield nature of the product constituted a financial investment, and likened it to a loan – Block Earner borrowed funds and promised a fixed return. There was no element of shared risk or variable return linked to the company’s performance, and the criteria under s 763B was not satisfied.
- Not a derivative: The Court also found that the Earner product was not a derivative as the amount to be returned to investors at the end of the term did not vary by reference to something else, but rather was fixed as the number of the crypto that was originally lent to Block Earner and the fixed interest payments notwithstanding that via a separate service (and not same arrangement) the crypto was converted to money to be paid to the user.
What this means for crypto businesses
The Court’s decision significantly narrows the scope of when fixed-yield crypto offerings might be considered financial products. It confirms that what matters most is the legal structure and obligations created under a product – not its economic function or how it might appear to operate.
This is welcome news for crypto platforms, DeFi projects and fintech’s offering yield-generating products without an AFSL. The judgement provides more clarity and may encourage businesses to revisit product offerings that were previously paused due to regulatory risk.
But the decision is also specific to the facts of Block Earner’s product. Similar yield-bearing products could still fall within the definitions of managed investment schemes or financial investments depending on their structure and marketing.
Looking ahead
The Full Federal Court has brought clarity to one part of the crypto regulation puzzle. It also reinforces the need to interpret statutory definitions precisely – and avoid assumptions that all crypto offerings automatically fall within existing financial product definitions.
Crypto providers should continue to track court decisions and ASIC’s enforcement posture closely. And with ASIC now needing to reconsider its draft update to ASIC Information Sheet 225 contained in ASIC Consultation Paper 381, the policy landscape could shift again.
If you would like to explore how this decision may affect your business, or discuss compliant ways to offer digital asset products within regulatory parameters, please contact John Bassilios.
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