BlockFi is a cryptocurrency lending platform that allows you to earn interest like a bank savings account in stablecoins, BTC, ETH, or LTC.
|Total Investment volume||Undisclosed|
|Average annual interest||0.5 – 9.3%|
|Investment Fees||One free withdrawal per month|
|Who’s eligible to invest||Anyone with crypto|
|Investment Type||Interest earning savings account|
|Auto Invest Function||Yes|
|Investor Protection||200 – 500% Collateral|
|Currencies||Five stablecoins and BTC, ETH, LTC|
PROS & CONS
- Automated liquidity pool style investing
- No Fees for Deposits or 1st withdrawal
- Flexible to lend in five stablecoins (USDC, GUSD, USDT, PAX, PAXG) or BTC, ETH or LTC
- Overcollateralized loans by 2, 3 or even 5 to 1
- Flexible terms and trading offered
- Innovative with new products like BTC Rewards credit card (so far US only)
- Institutional services and lending option for businesses
- No options of loan selection, borrower selection or differing interest rates
- Bitcoin and Ethereum based interest at large amounts (Tier 2 and 3) very low – only 2% and 0.5%
- EUR and GBP holders must send USD based stablecoin or crypto for deposits or opening Trading Account
- No secondary market
- Loans have a 2% origination fee
- Conventional VC funding means they are private and less transparent with Statistics than most
- BlockFi loans your money like a bank does. They pay you a fixed interest rate into the BlockFi Interest Account. While they don’t call it a liquidity pool, that’s what it is. BlockFi puts your funds into a liquidity pool and loans it out to the borrowers.
- BlockFi has trading accounts too. These let you buy, sell, and exchange crypto right from the same site where you are lending or borrowing. This part of BlockFi’s business grew by over 60,000% in 2020 (see below).
- The loans you invest in are overcollateralized by 2 to 1 normally. So it’s 2 dollars deposited for every 1 dollar borrowed. But there are three tiers based on Loan to Value (LTV): 50%, 35%, and 20%. This means 2 to 1 for 50%, almost 3 to 1 for 35% and 5 to 1 for 20%. This provides a high level of protection for your capital.
- Flexible terms. You can swap out between cryptos at any time to earn more interest or put that towards your trading account. Interest compounds immediately.
- They are offering the first rewards credit card where the reward is paid in Bitcoin in the marketplace. Also, BlockFi has a brand new trust account offering just announced in February 2021.
- Most borrowers are business borrowers in the industry. Aside from lending, these businesses have a set of institutional services like block trades or settlement that BlockFi does for them as an added revenue source.
- You have no option of choosing individual borrowers, loans, potential interest rates or anything else. You are stuck with earning the fixed interest ONLY.
- At high levels, Tier 2 BTC (1.0 to 20 BTC) and Tier 3 BTC (20.0 BTC and above), the interest rate is very low at 2% and 0.5%, respectively. In comparison, the Tier 1 BTC rate is 6%. At current prices, 1 BTC is $58,500 USD so saving in Bitcoin on BlockFi is not a great option for higher volumes. At least other options pay better for large amounts. After BlockFi introduced new rates in April 2021, the same is also true for ETH. Here, a Tier 2 ETH (100 to 1000 ETH) at 2% and a Tier 3 ETH (1,000 ETH and above) at 0.5% were introduced. The rate for Tier 1 ETH (0 to 100 ETH) is unchanged at 5.25%.
- EUR, GBP and USD holders need to send a cryptocurrency for deposit OR open a trading account to wire fiat money in and purchase a crypto with the BlockFi trading account. As you can from the chart below, this is exactly what people did by selling stablecoins (59%) and buying Bitcoin and PAXG.
- No secondary market but you can withdraw at any time.
- Loans have a 2% origination fee. Some consider this a negative, while others figure it’s a cost of doing business.
- Due to BlockFi’s conventional VC funding from industry investors like Morgan Creek, Coinbase Ventures, and Winklevoss Capital, they are a completely private company and do not have to disclose any information they don’t want to. Most announcements are public relations statements like this one from July, talking about a 100% Rrevenue increase on a monthly basis. More importantly, they lack a Statistics page or information about how frequent margin calls are or if those with Interest accounts have ever lost money.
Who is BlockFi best for?
BlockFi is a good choice for investors who want things easy and convenient. The bank-like savings account will be familiar territory. You won’t be waiting for a loan to fund. You start earning interest right away. Investors who are new to crypto will like the idea of a stablecoin like USDC or USDT to maintain a consistent price while earning 8.6% or 9.3% per year, respectively.
It’s also good for both Americans and Europeans who like the idea of a platform that is regulated and approved by US financial agencies. This regulation gives lots of people the comfort to dip their toes into the crypto market for investment when they may not otherwise. It’s a unique feature as most lending platforms don’t bother with regulators in the US or elsewhere. They custody their Bitcoin, and yours, with the Gemini Trust, another regulated entity that is part of the Gemini Bitcoin Exchange owned by the Winklevoss twins.
BlockFi is a completely centralized operation. They are in control. If you want a more decentralized lending option or a DeFi platform, this is NOT the platform for you. But with that centralization comes convenience and crypto expertise. You can see from the loan growth numbers reported in February 2021 for 2020 that many people like this convenience. Clients that already had a loan grew by 170%, meaning they were happy with what BlockFi offers. The numbers are shown below.
What does BlockFi Offer?
BlockFi offers loans and deposits in five stablecoins (USDC, USDT, PAX, PAXG, or GUSD) or three cryptocurrencies (Bitcoin, Litecoin or Ethereum).
- Lenders use the BlockFi Interest Account to earn interest on their crypto. Rates differ based on which one you deposit into the platform (see rates below). They also have a trading platform for the purchase of crypto that you can easily set up, wire funds, buy your crypto and then put it into your Interest Account.
- Borrowers can be from anywhere and put up 2x-5x the amount they want to borrow in cryptocurrency. The standard is 2x, meaning 2 to 1 collateralization for borrowers.
Loans are available with payments on an interest-only basis to keep payments low. Their loan calculator lets you see what your monthly payments will look like and what price level of BTC, ETH, or LTC would trigger a margin call. With crypto and collateralized lending, margin calls are important. Margin calls require a principal payment on the loan or some liquidation of borrower collateral to pay down the loan balance.
Just announced in February is the new BlockFi Bitcoin Trust. This trust account allows for the easy purchase and holding of Bitcoin for those willing to pay for the convenience. BlockFi will earn a sponsor fee of 1.75% to set up and manage the trust. Custody will be with Gemini, owners of one of the biggest Bitcoin exchanges and the creators of the GUSD stablecoin available on BlockFi as a deposit option. The Trust will first be available to institutions that want exposure to Bitcoin, then other qualified investors and eventually US based accredited investors. There is no plan based on the announcement to offer this to individual, retail investors. Those interested in how this works can look at the Grayscale Trust as an example of an existing investment structure. You, as an individual investor, still benefit even without investing in the trust. As BlockFi’s capital base increases, the likelihood of losing money on your Interest Account is even less than before.
Who is Behind BlockFi?
The team behind BlockFi is based in the USA with offices in Poland, Argentina and remotely. Their mission is to redefine banking. Zac Prince and Flori Marquez are the co-founders with a management team of 10 people to run BlockFi. The ownership is mostly VC based with groups like Winklevoss Capital, who own the Gemini Bitcoin Exchange, Coinbase Ventures (part of the same company that owns the Coinbase Bitcoin Exchange), and Morgan Creek Capital, a prominent VC in cryptocurrency.
How does BlockFi make money?
BlockFi does not charge deposit fees to lenders, although banks or crypto networks like the Ethereum blockchain or the Bitcoin blockchain might for you to transfer crypto in or out. BlockFi makes money by:
- Charging a 2% origination fee on loans
- Withdrawals after the first one each month have a fee
- Small spread on trades for Trading Accounts (~1%)
- Fees for institutional services they offer business clients and
- A small spread between the interest rate charged to borrowers and what they pay you in your Interest Account.
This last way, number 5 above, is exactly how banks make money through Net Interest Margin. So if you deposit USDC and earn 8.6% while on a 50% LTV BlockFi charges 9.75%, that difference of 1.15% or 115 basis points is a source of income for the platform. Those 115 basis points are the Net Interest Margin.
How much can you earn?
Interest rates vary based on if you receive your interest payments in one of the five stablecoins USDC, USDT, GUSD, PAX or PAXG, or one of the cryptocurrencies BTC, ETH or LTC. Rates start at 0.5% for BTC (Tier 3) and ETH (Tier 3) and go up to 9.3% for the USDT stablecoin.
How to Invest on BlockFi
Two options are available. You can either:
- Deposit your existing crypto if it’s one of the eight accepted coins into your BlockFi Interest Account OR
- Open up a trading account, wire your USD, EUR, or GBP, and then buy crypto directly at BlockFi, which you can then earn interest from in your Interest Account.
BlockFi offers the closest experience to the legacy financial system in crypto. The lack of a p2p option could be a benefit due to its simplicity or a drawback due to limited choices. BlockFi is one of the oldest crypto lending platforms around. It started in 2017 before the new, recent DeFi era in crypto. For everyone, especially those newer to crypto, it will feel more familiar than a DeFi lending platform. The idea of depositing money and the company uses it to lend is something everyone understands. For those newer to crypto, the only novelty will be that you deposit (or get a trading account to buy) crypto instead of your home currency. That and the higher interest rates you can earn. For everyone else, BlockFi is a good savings vehicle whether you want to earn with crypto that you already have and are HODLing for the long term or to earn with your existing Euros or Dollars after converting them to crypto.
While lending is BlockFi’s core business, they are trying to bridge conventional banking and investment banking services with the cryptoeconomy. They do this with the institutional service offerings and other revenue streams outside of lending. We see this as an advantage. It’s an easy way to attract high end clientele for their lending business, and the added Revenues make the platform stronger without relying only on overcollateralization for protection.
BlockFi is a centralized lending business backed by venture capital like many conventional tech or finance businesses (and many fiat p2p lending platforms). Crypto Beginners will like taking advantage of BlockFi’s expertise to get exposure to crypto markets in ways already familiar to them. That expertise, along with the higher interest rates and collateral protection, will show everyone what to look forward to in the cryptoeconomy.
At P2PMarketData we are dedicated to providing unbiased reviews of peer-to-peer lending, real estate crowdfunding and crypto lending platforms. Among other, in our mission to bring more transparency to the market we closely monitor and track over 70 platforms funding volumes.
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