In this article, the analysis of both the FCA Judgment and the Appeal Judgment will be compared to show the varying interpretations that can come about with regards to application of Block Earner’s crypto service offerings to the financial products that ASIC claimed for them to be, namely a managed investment scheme (MIS), making a financial investment and offering a derivative, which are all defined in, or for the purposes of, Chapter 7 of the Corporations Act 2001 (Corps Act).

Summary Table

This case is all about whether the crypto offerings by Block Earner were financial products requiring Block Earner to hold an AFSL.

This table summarises the findings between the Federal Court and the appeal Judgment of the Full Federal Court.

These findings are discussed in more detail in the final section of this article.

The Complexity of Chapter 7’s Financial Product Definitions

On 22 June 2023 the Australian Law Reform Commission (ALRC) launched its third and final interim report seeking to help alleviate the complexity of Chapter 7 of the Corps Act, which has been an issue brewing for some time, and which can arguably be seen to further compound due to the rise of crypto investments (this case is but one example). Since not long after the creation of Bitcoin, the debate of whether crypto is a financial product has moved alongside the Chapter 7 complexity issue.

The ALRC states on its website:

Chapter 7 of the Corporations Act 2001 (Cth) is like an old cupboard: it is crammed full and poorly organised, with insufficient time set aside for the occasional spring clean. While the first few boxes fit in this cupboard, over time the containers have become mislabeled and inconsistently sorted. More and more law has been packed into old suitcases, tattered boxes, and shabby bags. The cupboard contains more than it was ever designed to hold.

The sense of dread when opening a messy cupboard is the same feeling that confronts many users of Chapter 7. Interim Report C is, fundamentally, about how the cupboard that is Chapter 7 could be better organised so that users can find what they need without having to go through every box of old CDs and cassette tapes.

ASIC’s investigation and action against Block Earner

On 21 October 2022, ASIC wrote to Block Earner claiming that the Earner product was a managed investment scheme, an investment facility and/or a derivative, by making reference to various statements on Block Earner’s website, and stated ASIC’s view that Block Earner should immediately cease offering the Earner product.

Block Earner did not appear to have any AFSL authorising it to issue a managed investment scheme, financial investment or derivatives.

Block Earner operated three products being the “Earner”, the “Access” and also a “Digital Currency Exchange Service” (Exchange) to allow users to exchange Australian Dollars for different types of cryptocurrencies.

It was the Earner and Access products which were contended by ASIC to be financial products.

What appeared to be the general cascading pattern of argument by ASIC was to claim first that the product was a “managed investment scheme”, then to move to the more broadly defined “financial investment” and thirdly, arguably even more broadly by way of catch-all, as a “derivative”.

After considering the Appeal Judgment, these three types of financial product, in the context of the crypto service offerings of Block Earner, may be seen as more specifically defined types of financial products, rather than cascading catch-alls of each other.

Speculation on the future of this issue

ASIC stated in a Media Release dated 5 September 2025 that the definition of financial product was drafted in a broad and technology-neutral way, and in appealing against the Full Federal Court’s Appeal Judgment, ASIC is seeking clarification from the High Court on how this definition applies to all financial products and services whether they involve digital assets or not.

The High Court’s much anticipated finding on the nature of the Earner product may have some effect on the 2025 Digital Asset Bill, which seeks to include broadly two types of crypto custody platforms for which users: (1) give “custody” of their cryptocurrency to the platform operator (the “digital asset platform”) or (2) give custody of another asset to the platform operator in exchange for a digital token, which gives the right to redeem it to retrieve that deposited asset (the “tokenised custody platform”, which does not preclude redemptions to be cash settled).

The High Court may provide this clarification in ASIC’s (i.e. broad interpretation) or Block Earner’s (i.e. more narrow interpretation) favour, however, the ultimate outcome for Block Earner may be that either way its business model may become legislated to fall within the requirement to hold an AFSL once the 2025 Digital Asset Bill is passed.

Noting here that for issuers of stablecoins, the draft Explanatory Memorandum for the 2025 Digital Asset Bill stated that stablecoin issuers won’t fall within the digital asset platform or tokenised custody platform definitions, but rather are subject to the separate stored value facility framework in relation to another financial product, being the non-cash payment facility (see ASIC v BPS Financial).

The cost of bringing this case to the High Court against the cost of applying for and maintaining the AFSL would be a useful costs-benefits comparison for an industry where there currently remains some level of uncertainty as to whether a crypto related scheme would be a financial product.

What did Block Earner do?

Access Product

The Access product provided users with streamlined access to two “DeFi” yield generating “protocols”, Aave and Compound. Decentralised finance (DeFi) refers to peer-to-peer finance conducted through the use of smart contracts (i.e. through the execution of a computer program rather than through execution of a loan agreement through a centralised intermediary, like a bank).

The “protocol” is a reference to the decentralised transaction itself, which is automatically recorded and verified on a blockchain, without the parties needing to know and trust one another or sign any legal agreement - it is self executing, a “smart contract”.

The FCA Judgment (from an affidavit of Charlie Karaboga, the CEO and co-founder of Block Earner) provides a useful description of these DeFi protocols:

Aave and Compound are DeFi protocols which operate on the Ethereum blockchain, and those protocols are accessible to anyone. Both Aave and Compound provide a platform for users to lend out their cryptocurrency holdings and earn interest on their loans, using algorithmic models to dynamically adjust interest rates based on the supply and demand for each cryptocurrency. When demand for borrowing a particular asset increases, the interest rate for borrowing that asset also increases; conversely, when demand decreases, the interest rate decreases as well. This dynamic interest rate model helps to balance the protocol’s utilisation and maintain equilibrium between lenders and borrowers. In order to transact on Aave or Compound, it is necessary to exchange cryptocurrency to protocol-specific digital tokens that have certain entitlements to yield. For Aave these are known as “aTokens”. For Compound, they are known as “cTokens”. These tokens can only be used on the relevant protocol.

[...]

DeFi protocols such as Aave and Compound use distributed ledger technologies to allow lending, staking (ie locking up in return for rewards) or exchanging crypto assets outside of centralised cryptocurrency exchanges (Agreed Facts at [25]). The services are implemented through executable software programs called smart contracts whose execution is automated (Agreed Facts at [25]). Both Aave and Compound provide a platform for users to lend out their cryptocurrency holdings and earn interest on their loans. Both protocols use algorithmic models to dynamically adjust interest rates based on the supply and demand for each cryptocurrency (Mr Keraboga’s first affidavit at [70]). Each of Aave and Compound represent a market or “pool” to which users of the DeFi protocols supply cryptoassets (eg ETH, BTC and USDC), which must be converted to protocol-specific digital tokens known as aTokens (aWETH, aWBTC and aUSDC in the case of Aave) or cTokens (cUSDC in the case of Compound) before the DeFi protocol user can supply to, or borrow from, the relevant market or “pool” (Agreed Facts [25]).

Earner Product

On or about 17 March 2022, Block Earner first commenced offering the Earner product to consumers, and ceased offering Earner on 16 November 2022, at which time the Earner product had approximately 491 users.

The Earner product was also called the “Lend” product in the user terms and conditions of Block Earner. It mainly included fixed income yielding products for US Dollars, gold and crypto (Bitcoin, and Ethereum).

In the usual case, the customer would pay cash from their bank account directly to Block Earner, which would then appear as deposited in that customer’s “Block Earner Cash Account” (Cash Account). The customer could then use this to invest in the Earner or Access products.

For investment in the Earner product, a user’s assets in their Cash Account would be converted to an eligible cryptocurrency that would then be “loaned” to Block Earner which was at full discretion as to how it would use that loaned cryptocurrency. Block Earner in return would be obliged to pay to the user a fixed rate return as interest for the loan.

Exchange Product

Block Earner used the loaned eligible crypto to generate income for itself by lending the crypto to third parties.

Noting that a crypto asset generates income through capital gains in general from trading and not directly by providing its own fixed income.

Otherwise some crypto can be “mined” by providing computing power to assist in the administration of the block chain in return for some of that crypto.

By being able to deposit cash into their Cash Account, the user would then use the Exchange product to convert the cash into the eligible crypto.

ASIC contended that the conversion process formed part of the Earner and Access products, and was not separate to those products. This would be relevant to ASIC’s arguments discussed below.

What elements are required to need an AFSL here?

As the focus of the Earner and Access products were to earn fixed returns for users by lending their crypto to Block Earner, rather than facilitating payments between customers and merchants like in the ASIC v BPS Financial case here, there was no mention in either the Federal Court or Full Federal Court Judgments about a non-cash payment system or any stablecoin issuance. Only the three financial products described briefly below.

Managed Investment Scheme

The definition in section 9 of the Corps Act sets out the three elements that must all be present to define what is a “managed investment scheme”

(i) people contribute money or money’s worth as consideration to acquire rights (interests) to benefits produced by the scheme (whether the rights are actual, prospective or contingent and whether they are enforceable or not);

(ii) any of the contributions are to be pooled, or used in a common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property, for the people (the members) who hold interests in the scheme (whether as contributors to the scheme or as people who have acquired interests from holders);

With a third limb at the end paragraph (iii) that investors have no day-to-day control over the operation of the scheme (whether or not they have the right to be consulted or give directions).

Financial Investment

A “financial investment” is arguably broader than a managed investment scheme and is designed to catch something that gives the investor the impression that they will obtain a financial return for contributing their money, whether or not they acquire rights or interests in a scheme.

It is defined in section 763B of the Corps Act to require the following elements:

(a) the investor gives money or money’s worth (the contribution) to another person and any of the following apply:

(i) the other person uses the contribution to generate a financial return, or other benefit, for the investor;

(ii) the investor intends that the other person will use the contribution to generate a financial return, or other benefit, for the investor (even if no return or benefit is in fact generated);

(iii) the other person intends that the contribution will be used to generate a financial return, or other benefit, for the investor (even if no return or benefit is in fact generated); and

Similarly to the managed investment scheme there is a limb at the end paragraph (b) that investors have no day-to-day control over the use of the contribution to generate the return or benefit.

Derivative

The Appeal Judgment referred to International Litigation Partners Pte Ltd v Chameleon Mining NL [2011] NSWCA 50: “[t]he definition of “derivative” is extraordinarily wide, one which could catch many arrangements not ordinarily thought of as derivatives” . It is defined in section 761D of the Corps Act:

(1) [...] a derivative is an arrangement in relation to which the following conditions are satisfied:

(a) under the arrangement, a party to the arrangement must, or may be required to, provide at some future time consideration of a particular kind or kinds to someone; and

(b) that future time is not less than the number of days, prescribed by regulations made for the purposes of this paragraph, after the day on which the arrangement is entered into; and

(c) 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), including, for example [...] an asset; a rate (including an interest rate or exchange rate); an index; a commodity.

Access product was none of the three financial products

Access not a MIS - FCA Judgment

The Access product was marketed as providing users with access to the Aave and Compound protocols, being third party DeFi lending protocols operating on the Ethereum blockchain.

As the Access product utilised smart contracts, there was no central counterparty or paper contracts to the transactions that occurred on the DeFi protocols, they were self-executing.

The key point precluding the Access product from being a managed investment scheme was the pooling and contribution elements.

Use of the Access product, and the financial performance of the tokens purchased with it, was treated on an individuated basis, not pooled.

Users of the Access product retained “ownership” of their cUSDC, aWETH, aWBTC or aUSDC tokens.

Therefore the Federal Court found that there was no contribution and no pooling of contributed assets by users of the Access product:

the verb “contribute” conveys joint rather than independent action.

[...]

given that the statutory language clearly requires a link by use of the word “to” in the expression “any of the contributions are to be pooled, or used in a common enterprise, to produce financial benefits … for the people … who hold interests in the scheme”. The word “to” in that context means “in order to”, thereby requiring that there be a purposive link.

[...]

there is no basis from which it could be inferred that users objectively intended that their payments would be pooled to produce financial benefits for them in this way

Access not a Financial Investment - FCA Judgment

Similarly to the finding that the Access product was not a managed investment scheme, ASIC’s argument that Access was a financial investment also failed, not on the pooling requirement which is not required for the definition of financial investment, but rather on the actual use or intention (by investor or platform) to generate a financial return. The Federal Court stated:

Block Earner is doing no more than providing services which involved, in the first place, exchanging AUD for cryptocurrency, and second, connecting users’ cryptocurrency to smart contracts on DeFi protocols to earn yield.

Block Earner does nothing with the cryptocurrency other than deposit it into a smart wallet connected to the applicable DeFi protocol on instructions from the user. At all times, users retain “ownership” of their tokens (Agreed Facts at [29]).

In essence, Block Earner is in the position of a broker, effecting transactions on behalf of its customers, who were themselves using money or money’s worth to generate a financial return or other benefit for themselves.

Users would enter into self-executing smart contracts using their crypto stored on Block Earner’s platform and they would retain ownership of their crypto and the resulting tokens generated as returns for the lending transactions entered into on the block chain.

This precludes there being the “other person” as required under section 763B(a) of the Corps Act (which would be Block Earner) from being the one to “generate” the return, as the returns here would be self-executing under the smart contracts, which Block Earner did not develop or administer.

However the mere holding of the crypto by Block Earner on behalf of the user may well be captured under proposed AFSL requirements for digital asset platforms or tokenised custody platforms under the 2025 Digital Asset Bill.

Access not a Derivative - FCA Judgment

Despite reference to the definition of a derivative being extraordinarily broad, in this case the Access product was found by the Federal Court to fall under the exemption from being a derivative in section 761D(3)(b) for any contract for the future provision of services.

The Federal Court described those services under the Block Earner terms of use on its website as at 8 November 2022 (shortly before ceasing on 16 November 2022):

Those services include:

exchanging AUD and cryptocurrency to tokens (cll 4.1(a)(i) and (e)(i), 4.2(a)(ii)),

aggregating users’ tokens in an omnibus account that provides access to Aave and Compound

and holding tokens in that omnibus account (cl 4.2(a)(ii)),

tracking and calculating returns earned on their tokens (cl 4.2(a)(iii)),

and ultimately remitting the tokens and any yield earned to the user when they elect to cease using Access (cl 4.2(c), (d)).

Again these services may be captured under proposed AFSL requirements for digital asset platforms or tokenised custody platforms under the 2025 Digital Asset Bill.

No issue arose in the Appeal Judgment by the Full Federal Court about these findings that the Access product was neither a managed investment scheme, nor a financial investment, nor a derivative.

Only the Earner product was considered in detail in the Appeal Judgment.

Earner was none of the three financial products - eventually

Earner was a MIS - FCA Judgment

Earlier in the Federal Court Judgment, and differently to the Access product, there was found to be pooling of contributions of cash by users to the Earner product.

The breadth of the meaning of “scheme” was utilised in the Federal Court Judgment to find there was some sort of scheme under which users contributed money or money’s worth in return for the fixed interest return promised by Block Earner.

The reasoning relied upon distinguishing an earlier decision of ASIC v Great Northern Developments Pty Ltd [2010] NSWSC 1087 where there was no “representation” to investors that a fixed interest return was promised, but in this case the fixed interest yield was “clearly made on Block Earner’s website, which satisfies the element that was missing in Great Northern Developments”.

The pooling requirement was found to be satisfied as well as the contribution requirement and so the Federal Court found the Earner product amounted to issuing of a managed investment scheme. The Court Stated:

I accept, that the word “contribution” connotes pooling, in that as a matter of ordinary English, the requirement that an investor “contribute” suggests that the investor is not acting alone or intending to act alone and independently in the payment of money

I accept that the Terms of Use do not mention pooling for any common benefit. However, it is sufficient that Block Earner represented that contributions would be pooled in order to generate a financial benefit for users.

The disclaimer in a section of Block Earner’s website headed “Risk Disclosure” stating that Block Earner does not hold AUD on trust was found to be ineffective.

Earner not a MIS - FCAFC Appeal Judgment

The Full Federal Court held that the Federal Court erred in its finding. Conceptually the Full Federal Court separated the fixed interest yield promise from the actual generation of returns by Block Earner using the crypto lent to it by users.

Users would receive the fixed yield as promised from Block Earner under its Terms of Use, but the user had no interest in the loaned crypto or the earnings generated by the loaned crypto which were held by Block Earner.

The user had a loan agreement with Block Earner and Block Earner was free to generate returns for itself using the loaned crypto, and the interests of Block Earner were separated from its obligations under its loans from its users.

In essence because there was no acquisition of rights or an interest (e.g. shares or units) in benefits produced by the scheme in consideration for the contributions (cash or exchanged crypto) made by the users.

This requirement in the definition of managed investment scheme in section 9 of the Corps Act was unfulfilled and there was found to be no managed investment scheme by the Earner product.

The Full Federal Court stated:

the Loan Terms expressly provided that the loaned cryptocurrency was “Block Earner’s to use, without limitation and at Block Earner’s sole absolute discretion” (cl 4.3(l)(i)); that “any interest paid … [was] not referable to the activities Block Earner undert[ook] with respect to the loaned Eligible Cryptocurrency” (cl 4.3(l)(ii)); and that “the only amounts” to which a customer had any “right” were “the amount of Eligible Cryptocurrency initially loaned … and any interest earned on that amount” (cl 4.3(l)(ii)).

The only relevant right acquired by customers under the Loan Terms was the right to payment of the Final Amount upon termination of the loan, being the amount of the borrowed cryptocurrency plus the interest accrued, as provided in cl 4.3(j),

Earner was a Financial Investment - FCA Judgment

Similarly, the Federal Court also found that there was at least an intention to, or an actual mechanism, to generate a financial return as required for there to be a financial investment under section 763B of the Corps Act.

In this case the Federal Court found all three limbs to be satisfied in relation to the Earner product, so it was held to be a financial investment:

In relation to the three alternatives in para (a), it is sufficient if only one of those is satisfied. However, in my opinion, all three are satisfied in relation to the Earner product.

This finding was broadly based on analysis of the business model of Block earner as inherently evidencing the intention of Block Earner to generate a return for the user and that Block Earner’s activities through the Earner product actually carried out this endeavour. The Federal Court stated:

the business model was for Block Earner to lend the cryptocurrency borrowed from users, together with its own cryptocurrency that it had purchased from other sources, to third parties at a higher interest rate than it was paying to Block Earner’s users under the Terms of Use, thereby providing Block Earner with the funds from which it would pay the fixed yield to users and also derive a profit for itself

[...]

it does not matter that Block Earner also used its own financial resources, in combination with the investors’ contributions, in generating that financial return or other benefit.

However in relation to the second limb paragraph (ii) that the investor or user intended for Block Earner to generate the return, there was no direct evidence from investors, so the Federal Court referenced ASIC v Secure Investments Pty Ltd [2020] FCA 1463, which included, “in that case that there was little, if any, evidence from the investors of the circumstances in which they entered into the relevant transactions insofar as those circumstances may elucidate what they were told of the nature of the investment”.

The Federal Court stated:

in my view it is more likely than not that a substantial proportion of the users of the Earner product would have formed the intention required by subpara (a)(ii), based on having read and understood the representation on the website

So all three limbs were found to be satisfied and the Federal Court found that the Earner product was a financial investment.

Earner not a Financial Investment - FCAFC Appeal Judgment

The Full Federal Court also disagreed with the Federal Court here, finding that all three limbs of the definition of a financial investment under section 763B of the Corps Act were not satisfied.

Instead of focusing on analysis of the business model of Block Earner, the Full Federal Court focused on the Terms of Use:

the primary judge, with respect, erred in finding that “Block Earner used the money or money’s worth given to it by the investors to generate a financial return or other benefit for the investors, by generating revenue from which it would be able to pay the fixed yield which it was legally obliged to pay”.

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.

a user could not possibly be taken to have believed that they intended that Block Earner would use their contribution to generate a financial return or other benefit for them, because that is precisely what the terms said it will not do.

The Full Federal Court specifically referenced five parts on the Terms of Use:

(1) all cryptocurrency loaned to Block Earner by them was Block Earner’s to use, without limitation and at Block Earner’s sole absolute discretion (cl 4.3(l)(i));

(2) any interest paid to them was not referable to the activities Block Earner undertook with respect to the loaned cryptocurrency (cl 4.3(l)(ii));

(3) the only amounts to which they had a right were the amounts of cryptocurrency initially loaned to Block Earner and any interest earned on those amounts (cl 4.3(l)(ii));

(4) they did not intend for Block Earner to use the loaned cryptocurrency to generate a financial benefit or act as an investment for them (cl 4.3(l)(iii)); and

(5) any benefit gained or loss incurred by Block Earner’s use of the loaned cryptocurrency would not be passed onto them (cl 4.3(l)(iv)).

This focus on the Terms of Use was also used by the Full Federal Court in disagreeing with the Federal Court’s assessment of the intention elements in the definition of a financial investment in section 763B of the Corps Act, being the intentions of both Block Earner and of the user.

Earner not a Derivative - FCA Judgment

The Federal Court stated that, as it found the Earner product to be a managed investment scheme, an interest in a managed investment scheme with more than 20 members (which Block Earner had) is an exclusion from the definition of derivative under sections 761D(3)(c), 764A(1)(ba) and 601ED(1) of the Corps Act, and so, it follows that the Earner product is not a derivative.

Earner not a Derivative - FCAFC Appeal Judgment

As the Full Federal Court found the Earner product to not be a managed investment scheme, the exclusion under section 761D(3)(c) of the Corps Act would not apply.

The argument by ASIC therefore broadly relied upon the Earner product and the Exchange product operating seamlessly together as part of the one process (i.e. the process required the use of both Earner and Exchange together and using just one of them was not an option):

the Terms of Use provided for three types of services that those who registered as users could access: the Exchange service, the Access service and the Earner service.

The Full Federal Court found that the Earner product alone, without connection with use of the Exchange product, was not a derivative:

ASIC accepted that the mere accrual of interest on the cryptocurrency was not a derivative, because it was not pegging something to the value of something else.

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)).