BlockFi was one of the first examples of the financialization of Bitcoin and other crypto assets. Much like a traditional bank, BlockFi allows users to either take out a loan or earn interest on their crypto holdings. Additionally, BlockFi has a trading platform that allows users to easily manage their crypto asset portfolio.
By: Kyle Torpey | Apr 30, 2020 | Modified Jun 24, 2020
|Products:||Interest accounts, trading, loans|
|Max interest available:||8.6%|
|Headquarters:||Jersey City, NJ, USA|
|Proprietary credit card:||Coming|
|Minimum loan amount:||$5,000|
|Maximum loan amount:||Uncapped|
|Bank Account (ACH)||No||No||n/a|
|Wire Transfer||Yes||Yes||1-3 business days|
|Cryptocurrency transfer||Yes||Yes||Nearly instant|
Due to its affiliations with the What Bitcoin Did Podcast and The Pomp Podcast, BlockFi is one of the most well-known crypto lending platforms on the market. In fact, crypto lending wasn’t really a topic of conversation before BlockFi hit the market in 2019.
Zac Prince is the CEO and founder of BlockFi, and the company was able to raise more than $60 million in funding before it launched. Some of the biggest names in Bitcoin and cryptocurrency, such as Morgan Creek Capital and Consensys Ventures, have invested in BlockFi.
For their custody solution, BlockFi tapped Gemini, which is based in New York and may have the best relationship with regulators out of any other cryptocurrency exchange on the market.
In short, BlockFi offers the same services as a bank for cryptocurrency holders. Users are able to either take out a loan (after putting down some crypto collateral) or lend their cryptocurrency holdings to BlockFi to receive interest payments.
Crypto Loans are the name of the game when it comes to BlockFi. Users are able to deposit their cryptocurrency on the BlockFi platform in order to gain access to a collateralized loan. Currently, users are only able to borrow against their Bitcoin, Ether, or Litecoin holdings. In most cases, it will only take a few hours to take out a loan with BlockFi.
Once a user has made a deposit, they are able to borrow up to 50% of the value of their cryptocurrency from BlockFi. In other words, if a user deposits $100,000 USD worth of Bitcoin onto BlockFi, they will be able to take out a loan up to $50,000 USD. Once the loan has started, the user can make monthly interest payments. The principle of the loan can be paid back at the end of the loan.
BlockFi holds the user’s cryptocurrency deposit for the duration of the loan to protect themselves against possible defaults. In a situation where a user doesn’t pay back the loan, BlockFi is able to seize the user’s cryptocurrency deposit. The user’s loan is denominated in U.S. dollars.
On the other side of every loan there is a lender, and that’s where the BlockFi interest accounts come into play. When users deposit their cryptocurrency into a BlockFi Interest Account, they can earn up to 8.6% interest on a yearly basis. Notably, the interest is compounded, meaning users earn additional interest on their interest earnings (as long as they’re left on the platform).
BlockFi currently supports interest accounts for Bitcoin, Ether, Litecoin, USDC, GUSD, and PAX. It should be noted that users are able to receive their interest payments in whatever cryptocurrency they prefer. Payments are made monthly.
In addition to their lending platform, BlockFi also allows users to trade cryptocurrencies. That said, the list of available trading pairs is somewhat limited.
BlockFi is also expected to release a credit card in 2020 that will allow users to earn cashback rewards denominated in Bitcoin. There are also additional services available to institutional investors on the BlockFi website.
BlockFi was originally founded back in 2017; however, the platform did not launch until 2019. There was also a beta version of the platform available in 2018. The basic idea behind BlockFi was to bring traditional banking services, such as savings and loans, to the crypto arena.
In early 2018, BlockFi received funding from some well-known names in the crypto industry such as SoFi, and Kenetic Capital. Later that year, Galaxy Digital Ventures invested $50 million in the company. By April 2019, BlockFi had more than $50 million worth of crypto deposits on its clients’ accounts. August 2019 is when Morgan Creek and Winklevoss Capital decided to invest in BlockFi.
BlockFi launched a trading platform in December 2019, and they are expected to release a credit card that allows users to earn crypto rewards by the end of 2020.
For Bitcoin depositors, 6% interest can be earned on up to 5 Bitcoin deposited into an account. Anything over 5 Bitcoin will earn a 3.2% interest rate. For Ether deposits, the offered interest rate is 4.5%, and the rate for Litecoin deposits is 3.8%. Deposits of USDC, GUSD, or PAX can earn 8.6% interest.
For loans, the interest rates depend on how much collateral a user puts down with BlockFi. Users who borrow less against their crypto collateral will be able to gain access to lower borrowing rates. A user who borrows an amount worth 20% of their deposit get a 4.5% APR, those who borrow 35% of the value of their crypto holdings get a 7.9% APR, and those who borrow half the value of their cryptocurrency deposit get a 9.75% APR. There is also a 2% origination fee associated with loans on BlockFi.
BlockFi does not currently offer a crypto credit card, but they are expected to launch a credit card that allows users to receive cashback rewards denominated in cryptocurrency in 2020.
Celsius Network offers a few advantages over BlockFi, but it can also be a bit more confusing. Additionally, Celsius Network does not have the same level of prestige as BlockFi when it comes to the investors backing the project, as Celsius Network raised its funding through an initial coin offering.
That said, Celsius Network does offer a number of additional options in terms of cryptocurrencies that can be used as collateral for loans or interest-bearing deposits. In addition to the Bitcoin, Ether, and Litecoin options that are also available on BlockFi, Celsius Network users are able to use Bitcoin Cash, Ripple, Dash, or EOS as collateral. There are also more stablecoin options available with Celsius Network. In terms of interest accounts, Celsius Network supports 25 different cryptocurrencies.
Celsius Network also offers low interest rates for borrowers. For example, users who borrow against Bitcoin collateral are able to get a lower APR% than on BlockFi. Those who deposit funds into interest accounts are also able to generally earn more with Celsius Network, with nearly 10% interest offered for stablecoin deposits.
Celsius Network also has its own token, which can be used to get discounted rates on loans and higher interest payouts.
Gemini, which is well known and regulated cryptocurrency exchange based in New York, takes care of custody for BlockFi. The vast majority of the cryptocurrency held by Gemini is done so via cold storage, which is a method of holding cryptocurrencies in an offline manner.
While BlockFi deposits are not FDIC insured, Gemini’s does have insurance on some of the funds that it holds on behalf of its users. This insurance policy only covers the funds held in Gemini’s hot wallets.
In terms of crypto custodians, there aren’t many options that could be considered safer and more regulated than Gemini, which is the company that handles BlockFi users’ crypto deposits. That said, it’s important to understand the risks involved with handing custody of crypto assets over to any third party. Check out our article on custodial wallets vs non-custodial wallets.
BlockFi is able to turn a profit on the spread between their loan and interest account rates, meaning, taking a cut from the difference between interest charged on crypto loans and interest given to crypto lenders. As mentioned previously in this piece, BlockFi allows its users to borrow Bitcoin for rates up to 9.75%, but those with interest accounts are only receiving 3 – 6% on their Bitcoin holdings.