- BlockFi is a startup established in 2017, which offers crypto lending to bitcoin holders. The company also provides crypto-funded interest accounts.
- BlockFi launched its first product in January 2018, after raising $1.5 million seed funding from Kenetic Capital and ConsenSys Ventures, and SoFi.
- The company launched its second product in 2019 by raising $18.3 million in funding from Valar Ventures, Morgan Creek Digital, Winklevoss Capital, Akuna Capital, ConsenSys Ventures, and Galaxy Digital Ventures, followed by $50 million from NBA Star, Universities, and others.
What Is BlockFi and What Does It Offer?
BlockFi is a crypto lending platform based in New York City, which was set up in 2017. The startup also offers crypto-funded interest accounts.
Recently, BlockFi was in the headlines for raising $50 million in August 2020, through NBA Star, Universities, and others, which consolidates major crypto investment trends.
In January 2018, the company launched its first product, cryptocurrency-backed USD loans keeping in mind cryptocurrency holders. This product allows investors to offer their Bitcoin, Litecoin, or ether assets as collateral for a loan.
In 2019, BlockFi brought in its second product for retail customers, which was an interest account funded by cryptocurrency.
By using this account, retail investors can deposit bitcoin, Litecoin, or ether with the company against the assets to accrue monthly cumulative interest.
Until 2019, BlockFi could offer loan options in 47 US states. Besides, the interest accounts are also available to retail investors all over the world, along with in any country approved by the United States, the United Kingdom, or European Union.
Here are what BlockFi offers:
- You can earn up to 8.6% APY: Investors do not have to pay any hidden fees in a BlockFi Interest Account. They will get an annual percentage yield or APY of up to 8.6 percent that accrues right away, along with monthly compounding interest.
- Take out loans and hold: You need not sell off your crypto assets to access cash. BlockFi allows investors to take out USD loan to meet their financial needs. It means you can use this loan for buying a home or obtaining more bitcoins.
- Can trade in cryptocurrency: BlockFi also allows investors to carry out trading across a diverse range of cryptocurrencies. Only this platform lets you earn interest as soon as you place your trade.
- Anytime withdrawals: BlockFi lets users can make withdrawals anytime. Users can withdraw free once a month.
- The signup process of BlockFi is quite simple.
DeFi Withdrawal Limits (source: Coincentral.com)
Who Are The Investors in BlockFi?
In 2018, BlockFi raised funding of $1.55 million from companies such as Coinbase Ventures, ConsenSys Ventures, Fidelity, Kenetic Capital, and SoFi.
Now, two years down the line, the number of investors has grown significantly.
Some of the well-known companies in the financial industry have come aboard as investors, including:
- Arrington XRP Capital
- AVON Ventures
- Akuna Capital
- CMT Digital
- GALAXY Digital
- MORGAN CREEK
- PURPLE ARCH VENTURES
- THREE ARROWS CAPITAL
- WINKLEVOSS CAPITAL.
How BlockFi Works
Despite the digital asset adoption by many crypto investors, their bitcoins often remain stored on exchanges or dormant for a long period. This strategy does not help them grow their investments or build substantial wealth.
The BlockFi Interest Account allows retail investors and companies holding crypto assets to receive interest in bitcoins held at BlockFi.
How Can You Receive Interest on Crypto
The crypto industry has gained momentum and has the potential to grow and hit the $1.40 billion in 2024.
This is a good enough reason for investors to put their money in it for high ROI and for users to accumulate wealth.
The users of the BlockFi Interest Account can deposit their bitcoins and receive interest. They receive the payout at the beginning of every month through accrued interest from the account.
The following chart can be a good example of crypto earnings. For instance, if a user is to get a 6 percent compound interest from his/her BlockFi Interest Account by depositing 1 Bitcoin on February 28, 2019, it will have an updated balance of 1.005 BTC on March 31st.
This process goes on for month after month until the users decide to take out their funds.
An Example of Crypto Earning (source: Blockfi.com)
If the price of the crypto and the interest rate remains unchanged, the user who deposited 1 Bitcoin on February 28, 2019, will see an overall increase in their overall holdings to 1.062 BTC (+6.2%) over a year.
According to the BlockFi co-founders Flori Marquez and Zac Prince, they initiated crypto-to-USD loans with a focus on helping people manage their digital assets and increase overall net worth.
What BlockFi Does with The Account Assets?
Simply put, BlockFi provides interest in asset holdings in Interest Accounts by lending them to reliable corporate and institutional borrowers.
Typically, BlockFi provides crypto loans on overcollateralized terms similar to crypto-backed lending to ensure loan performance.
BlockFi can terminate a loan as and when requires, along with managing reserve balances to enable client withdrawals from Interest Accounts.
The structure of BlockFi’s client funds is in such a way that it stays at the top of the capital stack, over BlockFi’s employee capital and equity. It means the company has been able to align its business and client incentives, and it would bear a loss before any client does.
According to BlockFi’s research and conversations, the company ensures a safe investment for users. BlockFi backs up its safety claim by referring its primary custodian Gemini Dollar (GUSD), which is a stablecoin issued by Gemini Trust Company LLC.
Gemini Dollar is a licensed custodian that comes under the regulation of the NYDFS, and it recently received the SOC2 compliance accreditation from Deloitte for their custody solution.
Gemini Dollar keeps 95 percent of its assets in on storage and 5 percent in hot wallets, insured by Aon.
In addition, BlockFi has an automated risk management system that monitors loan performance 24/7, by using the same reliable system to manage risks as used for crypto-backed loans.
The bottom line is BlockFi keeps users’ cryptocurrency deposits secure through the company’s top-notch compliance program to protect user assets.
Check this video on BlockFi risk management for even better understanding.
Before We Go
Even if your bitcoin just sits idle on an exchange, you may still reap the benefits of compounded interest through your BlockFi.
For example, if you have 5 BTC, it may turn into 5.62 BTC over a year, which will make you nearly $5,000 for that year, despite the usual ups or downs of Bitcoin.
Initiatives like BlockFi provides existing provide cryptocurrency investors a diversified revenue stream, which HODLers missed over the past few years.