On 22 April 2025, the Full Federal Court delivered its decision in ASIC v Web3 Ventures Pty Ltd [2025] FCAFC 58. The decision is a significant development for the regulation of crypto-related products in Australia and provides important guidance on the application of the managed investment scheme and financial product regimes under the Corporations Act 2001 (Cth) (the Act) to crypto lending products. It brings greater clarity to the boundaries of regulatory oversight in this evolving sector. Gilbert + Tobin acted for Web3 Ventures.
Background
Between March and November 2022, Web3 Ventures Pty Ltd (Block Earner) offered the Earner product that allowed customers to “loan” specified cryptocurrencies to Block Earner in return for a fixed interest rate. ASIC alleged that this product was a “financial product” under the Corporations Act (and therefore could only have been offered under an appropriate Australian financial services licence), either as a managed investment scheme, a facility for making a financial investment, or a derivative.
At first instance, Jackman J found that the Earner product was both a managed investment scheme and an investment facility (see ASIC v Web3 Ventures Pty Ltd [2024] FCA 64) (Liability Judgment). The Court also found that another product offered by Block Earner (the “Access” product) which facilitated access to a decentralised lending platform, was not a financial product, contrary to ASIC’s allegations.
In a later judgment, Jackman J ordered that Block Earner be relieved from liability to pay a pecuniary penalty in respect of the contraventions noting Block Earner’s honest conduct, the lack of customer loss and various other circumstances of the case (Penalty Judgment) (see ASIC v Web3 Ventures Pty Ltd [2024] FCA 574).
ASIC appealed from the Penalty Judgment, seeking the imposition of a penalty. Block Earner cross-appealed the Liability Judgment, challenging the finding that the Earner product was a financial product. There was no appeal in relation to the Access product.
The Full Court’s decision
The Full Court (O’Callaghan, Abraham and Button JJ) allowed Block Earner’s cross-appeal, finding that the Earner product was not a financial product. As a result, Block Earner had not contravened the law, and ASIC’s appeal was dismissed.
Key findings
Earner was not a managed investment scheme
Under the terms of the product, customers had a contractual entitlement to a fixed interest rate on the cryptocurrency they lent to the company, but ASIC argued, and the first instance judgment found, that the product was a managed investment scheme relying in part on an “FAQ” answer on the company’s website which explained that the company “pooled” the cryptocurrency lent to it by customers to on-lend to a third party.
The Full Court, overturning the reasoning at first instance, held that the Earner product did not satisfy the statutory definition of a managed investment scheme. In particular, the Full Court concluded that customers’ contributions were not made “in consideration for the acquisition of rights to benefits produced by the scheme” and their contributions were not “to be pooled, or used in a common enterprise, to produce financial benefits… for the people… who hold interests in the scheme”.
The Full Court was satisfied that, under the product’s Terms of Use, customers simply lent cryptocurrency to Block Earner in return for a fixed interest payment, with no right to participate in or benefit from Block Earner’s use of the funds beyond the agreed interest. Unlike a managed investment scheme, the customers’ returns were not referable to Block Earner’s activities they were not exposed to the risks or rewards of Block Earner’s deployment of the assets. The Court emphasised that the mere fact that Block Earner’s ability to pay interest promised to customers was supported by its own use of the funds did not mean customers acquired rights to benefits produced by a scheme. The Full Court also found that the FAQ answer did not modify or override the Terms of Use.
Earner was not a facility for making a financial investment
The Court rejected ASIC’s argument that the Earner product was a facility for making a financial investment under section 763B of the Act. The key issue was whether Block Earner used customers’ contributions “to generate a financial return, or other benefit, for the investor”, or whether the investor or Block Earner intended that outcome. The Full Court found that these criteria were not satisfied because Block Earner used the funds to generate a return for itself, given that customers’ entitlements were limited to the fixed interest, regardless of Block Earner’s success or failure in its own activities.
Earner was not a derivative
ASIC argued in the alternative that if the Earner product was not a managed investment scheme, it was a derivative. To participate in the Earner product, customers needed to lend cryptocurrency to Block Earner, which they could obtain by exchanging Australian dollars for the relevant cryptocurrency using an exchange service offered by Block Earner. ASIC argued that this had the effect of making the product a derivative because the value of the customer’s return could vary depending on the exchange rate between cryptocurrency and AUD at the time of withdrawal. The Full Court rejected this, finding that the exchange service was a distinct and optional arrangement, not an inherent feature of the Earner product. Customers could elect to receive their return in cryptocurrency, move it to another service, or convert it to AUD. As such, the product did not meet the statutory definition of a derivative.
Key insights
Clarity for similar products: The decision provides increased clarity for crypto businesses offering similar products. However, each case will depend on its own facts, and regulatory complexity remains high. Product offerors should carefully consider each product they offer in detail against the licensing regime.
Importance of clear terms: The Full Court placed significant weight on the express contractual terms. Clear, unambiguous contractual provisions defining the rights and obligations of the parties is critical.
Role of FAQs and promotional material: While FAQ content did not override contractual terms here, product issuers must ensure that all representations about a product, not just formal terms and conditions, are carefully considered and drafted. Misleading material can expose businesses to risk.
The Full Court’s decision underscores the importance of careful product design and clear contractual documentation. While it provides a degree of certainty for crypto businesses offering loan-based products, the regulatory landscape remains complex, and ongoing vigilance is required as the law and market practice continue to evolve and each crypto-product is likely to be assessed by the regulator on a case-by-case basis, regardless of the findings in this decision.