Crypto Earn Products and the Australian Financial Services Regulatory Perimeter: All the way to the High Court?
Originally published in LexisNexis Australian Banking & Finance Law Bulletin – (2025) 41 Australian Banking and Finance Law Bulletin 101.
Significant cases have been decided this year in Australia, addressing whether certain crypto earn products fall within, or outside, the Australian financial services regulatory perimeter. These include the judgment of the Full Court of the Federal Court of Australia in its unanimous finding against the Australian Securities & Investments Commission (ASIC) in ASIC v Web 3 Ventures Pty Ltd of 22 April 2025 (Block Earner) (Full Court), on appeal from the decision at first instance handed down on 9 February 2024 (First Instance). ASIC has sought leave to appeal from the Full Court to Australia’s highest court, the High Court of Australia. At the time of writing, it is not clear whether that leave will be granted. Additionally, a judgment of the Federal Court of Australia in ASIC v M101 Nominees Pty Ltd (in liquidation) (No 8) was delivered on 9 July 2025 by Justice Button (one of the judges of the Full Federal Court bench in Block Earner) (M101 Nominees). Although this case did not concern crypto products, it provides additional insights into how the approach adopted by the Full Court in Block Earner may be applied in future cases. Without any pretensions as to completeness, this article sets out key comments made by the judges in Block Earner and M101 Nominees. These comments are relevant to how crypto earn products are documented and marketed. They are also relevant to the revised form of ASIC’s guidance on how digital assets are treated under Australia’s financial services regulatory framework,[1] expected to be released at some time in 2025.
The Crypto Earn Product
In Block Earner, one of the products in contention involved customers “lending” crypto assets to Block Earner and receiving a fixed rate of return over the term of that loan.[2] At First Instance, the primary judge noted that:[3]
“[T]he concept of “lending” cryptocurrency is a misnomer. If one were to assume that cryptocurrency is a species of property, the word ‘lend’ in connection with cryptocurrency would seem akin to its use in securities lending, whereby securities are actually transferred outright by way of sale and purchase from the ‘lender’ to the ‘borrower’, with the borrower being contractually obliged to redeliver to the lender at a later time securities which are equivalent in number and type…In reality, however, the so-called lending” of cryptocurrency merely involves the conferral of an ability to control.
The facts agreed by the parties established that a user who had “lent” an eligible cryptocurrency to Block Earner could exit the crypto earn product by:[4]
- using Block Earner’s exchange service to convert the relevant cryptocurrency to AUD (with that AUD amount varying depending on the exchange rate between AUD that the relevant cryptocurrency at that time);
- holding the relevant cryptocurrency on the Block Earner platform in Block Earner’s crypto wallet: or
- moving the relevant crypto currency to Block Earner’s product that provided users with access to the Aave and Compound de-fi protocols.
First Instance: ASIC’s pleadings
In an amended concise statement filed at first instance,[5] ASIC contended that Block Earner’s crypto earn product (the Earn Product) was a managed investment scheme within the definition of section 9 of the Corporations Act 2001 (Corporations Act) because:
- “consumers contributed money (AUD) or money’s worth (crypto assets) as consideration to acquire rights to benefits produced by the scheme (the yield and any increase in value of the crypto assets);
- there was an objectively discernible intention that the contributions were to be pooled to produce financial benefits for the members, including because Block Earner told consumers via its website that the fixed yield was generated by pooling consumer funds; and
- the members did not have day-to-day control over the operation of the scheme.”
In the same pleading, ASIC also contended that the Earn Product was an investment facility within the definition in section 763B of the Corporations Act because:
- “the consumer gave money (AUD) or moneys worth (crypto assets) (the contribution) to Block Earner;
- Block Earner used the contribution to generate a financial return for the consumer, or the consumer intended that Block Earner would do so, or Block Earner intended that it would do so, as evidenced by [statements made by Block Earner]; and
- the consumers had no day-to-day control over the use of the contribution to generate the return.”
Additionally, in the same pleading, ASIC also contended that the Earn Product was a derivative “because the amount of consideration, measured in AUD (being the currency that users [deposited] and [received back] varied by reference to the value of the crypto-assets. This [was] the case because , on exiting the [Earn Product], consumers’ funds were converted from the crypto-assets to AUD at the prevailing exchange rate applied by Block Earner.”
Judgments at First Instance and on appeal to the Full Court
At First Instance, the primary judge held that the Earn Product was a regulated financial product and, additionally, involved Block Earner in a breach of section 601ED(5) of the Corporations Act. This was because it involved Block Earner:
- operating an unregistered managed investment scheme that ought to have been registered; and
- issuing a financial investment facility.
The primary judge did not need to address whether the Earn Product was a derivative, because “an interest in a managed investment scheme that is not a registered scheme and has more than 20 members is excluded from the definition of ‘derivative’ [by the operation of] sections 761D(3)(c), 764A(1)(ba) and 601ED(1) [of the Corporations Act].”[6]
On appeal, the Full Court held that Block Earner neither operated an unregistered managed investment scheme and nor did it issue a financial investment facility.[7] Given the Full Court’s finding that Block Earner did not operate a managed investment scheme, it had to address whether the Earn Product was a derivative, i.e. it could not rely on the exclusion relied upon by the primary judge. The Full Court ultimately concluded that the Earn Product was not a derivative. [8]
M101 Nominees
On 9 July 2025, Button J (a member of the unanimous Full Court in the Block Earner case) handed down judgment in M101 Nominees.[9] This case does not involve crypto assets. However, it is helpful in expanding upon certain aspects of the judgment of the Full Court in the Block Earner case: after the Full Court decision in Block Earner was handed down, the parties in M101 Nominees made further submissions on its implications on the managed investment scheme issues in dispute in the M101 Nominees case.[10]
Managed investment scheme
Set out below is a high-level summary of how each Court explained the factors which were in contention, in mapping the definition of “managed investment scheme” to the underlying facts. All these factors need to be satisfied, i.e. they are cumulative and not alternative factors.
| Factor: Did users contribute money (AUD) or money’s worth (crypto assets) as consideration to acquire rights to benefits produced by the scheme (the yield and any increase in value of the crypto assets)? |
| Block Earner First Instance: This factor was satisfied. “Users…contributed money or money’s worth jointly with all other users, as consideration to acquire the right to the promised interest yield under the Earner product which Block Earner represented it would be able to pay [the relevant representation] because of the benefit produced by the scheme of enabling Block Earner to earn revenue in a greater amount by deploying the pooled contributions from users (as well as its own cryptocurrency) in lending the aggregated cryptocurrency to third parties at a higher rate”[11] (emphasis added). |
| Block Earner Full Court: The primary judge erred. There was an express disavowal in the Loan Terms that precluded the making of the relevant representation by Block Earner and the Loan Terms governed the legal relationship between Block Earner and the Consumer, not the Q&A on the website which allegedly contained the relevant representation.[12] In any event, the Q&A “did not, properly construed, represent that interest would be paid from, or that customers had a right to participate in, the benefits of Block Earner’s own lending activities”.[13] |
| M101 Nominees: The Court accepted that, “should there be any doubt [about this issue], … regard may be had to matters outside the contract in question [to determine whether an arrangement delivering fixed returns to those who contribute constitutes a managed investment scheme]”.[14] This was helpful to ASIC, which had conceded that its position would be a lot more difficult to support, “if the [Full Court judgment in Block Earner] was interpreted as authority for looking only at the terms of the agreements with investors to determine whether [the above factor in] the definition of managed investment scheme is satisfied.”[15] Ultimately, on the facts of this case, the Court accepted that “investors …did not have the right, whether or not enforceable, to the fruits of any investment activities in which [the defendant] might engage…..On the contrary, investors’ rights were simply to the payment of interest and the return of their capital upon maturity. No promise was made that those payments would be sourced from any particular project(s) or investment(s) being pursued by [the defendant].” [16] |
| Factor: Was there an objectively discernible intention that the contributions were to be pooled to produce financial benefits for the members, including because Block Earner told consumers via its website that the fixed yield was generated by pooling consumer funds? |
| Block Earner First Instance: The primary judge considered that it was clear from the Q&A on Block Earner’s website (as it stood from March to May 2022) that users’ contributions were to be pooled.[17] This satisfied the requirement that there be an objectively discernible intention that the contributions made by the users were to be pooled.[18] This was despite the fact that the Loan Terms did not mention pooling for any common benefit. [19] Additionally, His Honour took the acknowledgment in the Loan Terms (that the user did not intend for Block Earner to use the loaned cryptocurrency to generate a return for the user) to be an acknowledgment that “there would be no equivalence or no direct correlation between the revenue earned by Block Earner …. and the fixed yield payable to users.”[20] So construed, that acknowledgment was consistent with the statement in the Q&A that users’ contributions would be pooled. |
| Block Earner Full Court: The Full Court found that an intention to pool funds was not a feature of the Earner Product. The Full Court set out several reasons why it considered that the primary judge erred,[21] including the following. First, the acknowledgment in the Loan Terms was unambiguous and as a result “the users must be taken objectively not to have intended for Block Earner to use the borrowed cryptocurrency to generate a financial benefit for them.” Secondly, the primary judge’s construction would render otiose the provision in the Loan Terms that interest was not referable to Block Earner’s activities. Thirdly, to the extent that the assessment of intention is not limited to consideration of the Loan Terms alone, the proper construction of the Q&As and the website was a whole was that customers could loan cryptocurrency to Block Earner in return for fixed interest, not that users were “offered an investment that pooled their funds with the contributions of other [users[ in order to generate greater [user] returns.” |
| M101 Nominees: The Court accepted that “an arrangement delivering fixed returns to those who contribute can constitute a managed investment scheme, and that characterising an arrangement as a loan does not preclude a conclusion that an arrangement is a managed investment scheme.”[22] ASIC had submitted that (unlike in the case of the Loan Terms in Block Earner) there was in this case no express disavowal in the relevant investment agreement of an intention for the defendant to use the investors’ contribution to generate a financial benefit or act as an investment of the investor. Further, ASIC submitted that (unlike the website Q&A in Block Earner) the defendant’s marketing materials represented that funds were being pooled for the purpose of producing financial benefits for investors. However, the Court considered that the defendant did not operate a managed investment scheme for the reasons given above.[23] |
Financial investment facility
Set out below is a high-level summary of how each Court explained the relevant factors in mapping the Corporations Act section 763B definition of “making a financial investment” to the underlying facts. Taking it as uncontentious that users gave money (AUD) or money’s worth (crypto assets) (the contribution) to Block Earner, only one of the three sub-factors in the first factor set out below needs to be satisfied, i.e. they are alternative and not cumulative factors. [26]
| Factor: Was it the case that: (i) Block Earner used users’ contribution to generate a financial return for the users, or, alternatively, even if no return is generated: (ii) the users intended that Block Earner would do so, or (iii) Block Earner intended that it would do so, as evidenced by [statements made by Block Earner]? |
| Block Earner First Instance: The primary judge held that factor (i) was satisfied because money or money’s worth was given to Block Earner and it used the money or money’s worth it received to “generat[e] revenue from which it would be able to pay the fixed yield which it was legally obliged to pay.”[27] His Honour noted that the application of factor (ii) was more contestable, in the absence of evidence from any investor as to that investor’s intention; furthermore, the express acknowledgment in the Loan Terms appeared on its face to negative any such intention.[28] However, in light of the Q&A on the website in relation to Block Earner’s generation of the fixed yield, His Honour found that the intention of the users (that Block Earner would use their contributions to generate the users’ financial return) could be inferred.[29] His Honour also found that factor (iii) was made out because evidence adduced by Block Earner as to its business model indicated that Block Earner intended to use users’ contributions to generate a financial return for the users. [30] |
| Block Earner Full Court: The primary judge erred. In relation to factor (i), the Full Court noted that Block Earner “used the money or money’s worth given by investors to generate a financial return ‘for’ itself, and to benefit itself. It did not use those contributions to generate a financial return or other benefit ‘for’ the investors”.[31] In relation to factor (ii), the Full Court noted that “ASIC did not adduce evidence from the customer about what they understood the first FAQ response to mean… or whether, and if so how, they relied on it”.[32] In relation to factor (iii), the Full Court noted that the Loan Terms and the evidence adduced by Block Earner as to its business model were “flatly inconsistent”” with the subjective intention attributed to Block Earner by the primary judge.[33] |
M101 Nominees: In this case, ASIC pleaded factor (ii) only, i.e. that the investor intends that the other person will use the contribution to generate the financial return, or other benefit for the investor (even if no return or benefit is in fact generated).[34] Button J noted that the Full Court concluded that in the circumstances of the Block Earner case, there was no basis for the Court to infer that investors would not have read the Loan Terms, even if they might have first read the FAQ response as suggesting “that they were going to reap the benefit of Block Earner’s activities”. Her Honour noted that, on the contrary, the Full Court inferred that users would have understood what they were told (and agreed to) in the Loan Terms and users could not be taken to have intended that Block Earner would use their contribution to generate a financial return or other benefit for them.[35] In M101 Nominees, Her Honour ultimately found that factor (ii) was not made out because the investors’ intentions had not been established. In particular:[36]
|
Derivative
As noted above, the primary judge in Block Earner did not need to address ASIC’s claim that the Earn Product was a derivative, because His Honour had found that it was a managed investment scheme in any event, thereby excluding it from the definition of a derivative.
Broadly, ASIC and Block Earner were at odds in the Full Court hearing about one limb of the definition of “derivative” in the Corporations Act, namely whether section 761D(1)(c) was satisfied for the Earn Product, i.e. whether “the amount of the consideration, or the value of the arrangement, is ultimately determined, derived from or varies by reference to (wholly or in part) the value or amount of something else (of any nature whatsoever and whether or not deliverable)…” ASIC noted that the Loan Terms contemplated that, when an earner loan came to an end, Block Earner would return the AUD equivalent of the cryptocurrency that had been lent to it. That AUD amount depended on the exchange rate between AUD and that cryptocurrency on the day of exchange. ASIC contended that, therefore, the amount of the consideration was ultimately determined, derived from or varied by reference to the value or amount of something else, for the purposes of section 761D(1)(c) of the Corporations Act. As a result, the Earn Product acquired the character of a derivative. [37]
Block Earner contended that the Earn Product was a distinct service from the Exchange service and the access service that it provided and that the Earn Product, when considered by itself, was not a derivative. The Full Court agreed, also noting that: [38]
“even if the Exchange service would, in the ordinary course, be used at the end of a loan of cryptocurrency, we do not consider that it is reasonable to assume that the parties to the arrangements regarded the loan and the Exchange service as constituting a ‘single scheme’ (s 761B(c)). Rather, the conversion of cryptocurrency to AUD via the Exchange service was a distinct process that would take the user out of cryptocurrency environment and allow the user to exit the platform by transferring their AUD out of the platform, or to re-enter the cryptocurrency environment, either by entering into the Access service or making another loan after entering into the Earner service again. On this analysis, even if all users of the Earner service had to use the Exchange service at the end of the loan of their cryptocurrency, the compulsion to use that service does not make it part of ‘a single scheme’ (s 761B(c)).”
The Full Court also noted that in any event the agreed facts recited that users were not required to use the Exchange service at the end of Loan of cryptocurrency: conversion to AUD was only one of three options.[39]
For both the above reasons, the Full Court concluded that the Earn Product was not a derivative within the meaning of section 761D of the Corporations Act.
Conclusion
The comments set out above are relevant to how crypto earn products are documented and marketed. They are also relevant to the revised form of ASIC’s guidance on how digital assets are treated under Australia’s financial services regulatory framework,[40] expected to be released at some time in 2025.
In parallel, Australia is proposing to implement a bespoke regulatory framework for digital asset platforms: broadly, these platforms are proposed to be regulated as a new category of financial product called a “digital asset facility”.[41] This regulation will apply despite the underlying assets being held by the platform provider not themselves being financial products for Australian financial product regulatory purposes.
Queries
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Disclaimer
This information is general in nature. It is intended to express the state of affairs as of the date of publication. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.
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[1] In December 2024, ASIC released its Consultation Paper 381: Updates To INFO 225: Digital Assets: Financial Products And Services and the accompanying Draft Revised INFO 225, available at https://download.asic.gov.au/media/ncfckqeq/cp381-published-4-december-2024.pdf (Consultation Paper) (visited 18 July 2025) and https://download.asic.gov.au/media/iktkpn20/attachment-to-cp381-published-4-december-2024.pdf (Draft Revised INFO 225) (visited 18 July 2025).
[2] ASIC v Web 3 Ventures Pty Ltd [2024] FCA 64 at [19] (First Instance).
[3] First Instance [2024] FCA 64 at [11]. This statement does not appear to have been disputed by the parties on appeal to the Full Court.
[4] First Instance [2024] FCA 64 at [26]; ASIC v Web 3 Ventures Pty Ltd [2025] FCAFC 58 [2025] FCAFC 58, at [38] (Full Court).
[5] Federal Court of Australia Amended Concise Statement – ASIC v Web3 Ventures Pty Ltd (2023) available on the ASIC website at https://download.asic.gov.au/media/snuhfrso/22-324mr-amended-concise-statement-published-4-april-2023.pdf (visited on 15 July 2025).
[6] First Instance [2024] FCA 64 at [54].
[7] Full Court [2025] FCAFC 58 at [57] – [77] and [83] – [101].
[8] Full Court [2025] FCAFC 58 at [119] – [138].
[9] ASIC v M101 Nominees Pty Ltd (in liq) (No 8) [2025] FCA 741 (M101 Nominees).
[10] ASIC v M101 Nominees Pty Ltd (in liq) (No 8) [2025] FCA 741 at [453].
[11] Block Earner First Instance [2024] FCA 64 at [40].
[12] Block Earner Full Court [2025] FCAFC 58, at [53] and [56].
[13] Block Earner Full Court [2025] FCAFC 58, at [56]- [59].
[14] M101 Nominees [2025] FCA 741 at [465].
[15] M101 Nominees [2025] FCA 741 at [460].
[16] M101Nominees [2025] FCA 741 at [469].
[17] Block Earner First Instance [2024] FCA 64 at [42].
[18] Block Earner First Instance [2024] FCA 64 at [42].
[19] Block Earner First Instance [2024] FCA 64 at [43].
[20] Block Earner First Instance [2024] FCA 64 at [43].
[21] Block Earner Full Court [2025] FCAFC 58 at [71]- [77].
[22] ASIC v M101 Nominees Pty Ltd (in liq) (No 8) [2025] FCA 741 at [469].
[23] See the text associated with note 15 above.
[24] Block Earner First Instance [2024] FCA 64 at [44].
[25] Block Earner Full Court [2025] FCAFC 58 at [44]-[45].
[26] Block Earner Full Court [2025] FCAFC 58, at [86]; Block Earner First Instance [2024] FCA 64 at [49].
[27] Block Earner First Instance [2024] FCA 64 at [50].
[28] Block Earner First Instance [2024] FCA 64 at [52].
[29] Block Earner First Instance [2024] FCA 64 at [53].
[30] Block Earner First Instance [2024] FCA 64 at [51].
[31] Block Earner Full Court [2025] FCAFC 58, at [90].
[32] Block Earner Full Court [2025] FCAFC 58, at [94].
[33] Block Earner Full Court [2025] FCAFC 58, at [93].
[34] M101 Nominees [2025] FCA 741 at [422].
[35] M101 Nominees [2025] FCA 741 at [428].
[36] M101 Nominees [2025] FCA 741 at [432]-[437].
[37] Block Earner Full Court [2025] FCAFC 58, at [120] – [123].
[38] Block Earner Full Court [2025] FCAFC 58, at [135].
[39] See n 3 above and associated text.
[40] See n 1 above.
[41] Australian Treasury, Regulating Digital Asset Platforms: Proposal Paper (October 2023), available at https://treasury.gov.au/sites/default/files/2023-10/c2023-427004-proposal-paper-finalised.pdf (viewed 18 July 2025).