Crypto lending platforms still require state licence to operate in California

Crypto lending platforms still require a state licence to operate in California, despite favourable developments at the federal level, according to the California Department of Financial Protection and Innovation (DFPI). The rule applies to lenders based in the state, or selling products to customers there.

Following the recent return of crypto lending, Compliance Corylated contacted the DFPI regarding the status of planned stablecoin lending platform Divine Research. It is registered in San Francisco, according to its filing with the Securities and Exchange Commission (SEC).

Divine Research is absent from the DFPI’s online registration. Although the Californian regulator could not confirm the platformʼs authorisation status, it warned that crypto lending could fall under “unlicensed activity”.

“Unlicensed activity can include engaging in financial services or lending without the required DFPI licence, or making misrepresentations about licensing status. Suspected unlicensed activity can be reported to the DFPI online,” said an DFPI spokesperson.

A report by the President’s Working Group (PWG) described crypto lending as “a way for institutional traders to obtain leverage”, before adding that “borrowing against one’s digital asset holdings, primarily bitcoin, has been popular among retail investors”.

Case studies: Salt Lending

The DFPI also added that it has previously acted against crypto lending platform Salt Lending in December 2024. The regulator secured $162,800 in borrower refunds and $137,500 in penalties, according to its statement.

Salt contracted 342 crypto-related loans with 151 California residents between 2019 and 2022. The firm began offering consumer and commercial loans to California residents in 2018, including both crypto and fiat currency loans. Borrowers then provided crypto assets as collateral and received loans in either crypto or fiat currency.

Under the California Financing Law, the DFPI found Salt had: failed to assess borrowers’ ability to repay; understated its annual percentage rates; charged undisclosed fees; and engaged in unsafe business practices. The firm also failed to maintain its required net worth of at least $25,000 from 2022 to 2023.

“Lenders have a responsibility to accurately represent the terms of loans extended to borrowers, as well as disclose associated charges, fees, and risks. Loans backed by crypto assets are no exception,” said DFPI commissioner Clothilde Hewlett in the statement.

Celsius and federal agencies

On the federal level, the 2022 collapse of crypto lending platform Celsius put the sector firmly on the regulatory radar. Celsius paused customer withdrawals in June, citing “extreme market conditions” and filed for bankruptcy a month later, leaving users unable to access around $4.7 billion in deposits.

The regulator charged Celsius founder Alex Mashinsky with fraud and offering unregistered securities through Celsiusʼs earn interest programme, alleging he was guilty of market manipulation and misleading communications, according to an SEC statement in July 2023.

Under the Commodity Exchange Act (CEA), the Commodity Futures Trading Commission (CFTC) also charged Celsius and its management team with fraud; operating an unregistered commodity pool; and misrepresenting the safety and regulatory compliance of customer deposits.

In the 2023 statement, the CFTCʼs then director of enforcement, Ian McGinley, explained: “This case is the CFTC’s first against a digital asset lending platform, and it demonstrates the agency will not shy away from ensuring the law is enforced in the digital asset arena. Innovation does not equate to immunity from compliance with the law”