After BlockFi, regulators are now targeting crypto lender Celsius Network.

Texas filed a notice this week seeking a hearing to determine whether to issue a cease and desist order against the company. This would require Celsius to show why it shouldn’t be ordered to stop offering its product to the residents of the state.

The hearing for the same is scheduled for February 14.

“We are disappointed these actions have been filed and wholeheartedly disagree with the allegations being made that Celsius has not complied with the law,” said a spokesperson, noting that the company will keep working with regulators to comply with the law.

“As of now, there are no changes in our services to any of our clients. We will keep our community updated with any development.”

Much like Texas, Alabama issued an order asking Celsius to show why it shouldn't be banned from offering this product within 28 days from Sept. 16.

These states were then joined by New Jersey, which ordered Celsius to stop offering some of its products effective November 1. It further described the products as unregistered securities.

In an interview with the Financial Times last week, Celsius CEO Alex Mashinsky had said that he was “very confident” that none of the company's products in the United States were securities.

According to the New Jersey regulators, the company “was at least partially funding cryptocurrency lending and proprietary trading” through the sale of unregistered securities.

“Financial companies operating in the crypto market are in the spotlight,” said Andrew Black, Deputy Attorney General of the State, on Friday. “If you sell securities in New Jersey, you must comply with New Jersey’s Investor Protection Act.”

Celsius has been holding more than $24 billion in “community assets” as of September beginning, according to the company, which offers its customers a yield of nearly 9% on USD stablecoins and as much as 6.2% on Bitcoin.

These actions against Celsius come right on the heels of similar actions taken by Texas, New Jersey, and others against New Jersey-based BlockFi. Recently, Coinbase also reported receiving a Wells Notice for their upcoming product Coinbase Lend.

Regulators and traditional finance are having a difficult time understanding how crypto companies offer such a high yield to their customers when they can’t offer more than 0.1%, in some cases even sub-zero, yield to their customers.

What they do not understand is that such high yields are being paid in crypto in part because these crypto-assets are lent out at higher rates to institutional investors, who need to borrow crypto assets to execute their trades.

In the crypto market, funding rates on perpetual contracts, to keep them along with the price of the undying crypto asset, can get extremely high; for instance, on Binance, during the peak of the market earlier this year, BTC annualized daily basis went to 41.4% in mid-April.

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