BlockFi is a wealth management technology firm servicing crypto investors, offering products such as crypto interest accounts, crypto trading and USD loans backed by crypto.
In this review, we will talk about the BlockFi Interest Account, an interest earning account for your crypto holdings.
The following content contains a non-sponsored review, but may contain affiliate links. For my disclosure policies, please read them here.
Introduction to BlockFi
BlockFi was founded in 2017 by Zac Prince and Flori Marquez with the mission of redefining banking to bridge the worlds of traditional finance and blockchain technology.
According to the company, it is the only independent lender with institutional backing from investors that include Valar Ventures, Galaxy Digital, Fidelity, Akuna Capital, SoFi and Coinbase Ventures.
They raised $30 million in Series B funding earlier in February and have offices in New York, New Jersey, Poland, and Argentina.
BlockFi claims that it manages more than US$1 billion in assets on the platform.
The BlockFi Interest Account
Investors who are long-term positive about cryptocurrencies might want to find ways to monetize their holdings and earn a return while holding them.
The BlockFi Interest Account (BIA) is one of BlockFi’s products that offers competitive interest rates to crypto depositors who store their crypto at BlockFi.
When investors deposit supported crypto holdings with them, they can accrue interest on their crypto and receive interest paid monthly in cryptocurrency of their choice, until they choose to withdraw their funds.
Interest earned with BlockFi compounds monthly, and there is no minimum or maximum deposit for the BlockFi Interest Account. The interest is usually paid on the first week of the following month.
Earn competitive interest rates on your crypto
It is interesting that BlockFi offers eye-popping interest rates to depositors.
Depositors can earn up to 8.6% annually (subject to changes) on their currently supported crypto assets, BTC, ETH, LTC, and stablecoins USDC, GUSD, and PAX.
The current interest rates are as follows –
Deposit and trade between crypto from the app
Users who want to trade crypto seamlessly can do so with their mobile app, which allows buying, selling and trading of selected cryptocurrencies between BTC, ETH, LTC, USDC, GUSD, and PAX.
To begin, you can start depositing USD (through outbound USD wired transfer) to your BlockFi account, which will be converted to GUSD (Gemini USD – a tokenized version of the USD).
You can then trade between USD stablecoins at 1:1 peg with no trading fees. This means you can trade 1 USD = 1 GUSD = 1 PAX = 1 USDC on BlockFi.
Create recurring trades with BlockFi
BlockFi recently launched recurring trades to give users flexibility and convenience to set automatic trades on a daily, weekly, or monthly basis either via the web platform or mobile app.
Users can only make recurring crypto buys (BTC, ETH, LTC) by selling stablecoins.
Withdrawal Fees and Limits
You can withdraw your deposits at any time, subject to a 24-hour security hold. Withdrawals are then processed by 8pm EST (or 8am SGT) on weekdays subject to their compliance review.
They offer one free withdrawal per client per month, thereafter fees of either 0.25 USD, 0.0025 BTC or 0.0015 ETH apply.
BlockFi sets out withdrawal limits on your deposited holdings to prevent systemic risks.
For example, you can only withdraw 1 million USD stablecoins every 7 days.
What does BlockFi do to your deposited assets?
Similar to how a bank would take in deposits in interest accounts and then lend if out to another party at a higher rate of interest, BlockFi generates interest on your deposits by lending them out to institutional and corporate borrowers on overcollateralized terms – earning an interest on these loans.
Collateralized lending is popular in the lending world even in traditional financial markets, where assets such as properties or securities can be pledged as collateral in return for a loan.
For BlockFi, they offer borrowers a loan-to-value (LTV) of up to 50%, based on their risk modelling. Borrowers will need to deposit crypto assets such as Bitcoin, Ether or Litecoin as collateral to borrow in USD, where it can be used to fund business or lifestyle expenses.
This collateral helps to limit risk and allow the borrowers to obtain funding at good rates without selling assets to raise cash.
Should the borrower’s collateral decrease in value outside of a safe range, bringing the LTV to 70%, a margin call would occur and the client has 3 days to post additional collateral or pay down their loan to bring the LTV back to the safe range.
Once the LTV reaches 80%, BlockFi will liquidate a portion of their collateral to bring the LTV back to a safe zone.
BlockFi Custody and Security
Depositors might be a little bit hesitant to deposit their crypto holdings with BlockFi as they might potentially lose access to their crypto holdings without their private keys.
It’s a legitimate concern, and there’s always a trade-off between the complexities of managing your own keys and centralized firms managing your keys on your behalf in exchange for convenience.
On the custody front, BlockFi stores your assets with their primary custodian, Gemini, at a unique wallet address.
Gemini is a New York trust company licensed by the New York State Department of Financial Services, a fiduciary under the New York Banking Law and held to specific capital reserve requirements and banking compliance standards.
It also has digital asset insurance coverage and is SOC 2 Type 1 security compliant, and is one of the most reputable crypto custodians around.
BlockFi themselves hold lending licenses and money transmitter licenses in several jurisdictions in the United States.
On the security front, there is Face or Touch ID authentication whenever you login into the app. Withdrawals need to be subjected to a one-day security hold before processing, and you can also allow withdrawals to whitelisted addresses only.
What are the biggest risks of BlockFi?
BlockFi is not a traditional financial institution and hence, the traditional consumer protection laws don’t apply.
They are not FDIC insured like a bank account and there is a real possibility of a 100% loss of funds – which explains why the interest you’re getting is quite high.
Apart of platform risks, there are also risks associated with lending, such as borrower default and late repayment, which might result in a loss of capital.
BlockFi tries to mitigate this by lending out to the right kind of borrowers, for example, high quality institutional borrowers such as investment funds and OTC market makers with strong creditworthiness and financial health – ensuring the more reliable and stream of interest income for lenders.
Performance during March 2020 sell off
According to BlockFi, there were violent downward price movements in the cryptocurrency market resulting in very limited liquidity in March 2020, and their risk management systems did not liquidate USD loan client collateral below a price of ~$4,500, despite the market reaching lows of ~$3,800.
There were also large volumes of deposits and withdrawals during that period, but they managed to maintain their operational processing SLA without downtime.
BlockFi suffered a data breach in May 2020, where some client information was exposed for a brief period through a BlockFi employee’s phone via a SIM-swap attack – user funds however, were also not affected.
Since then, it has hired a new Chief Security Officer as it continues to strengthen its security functions.
If you own crypto, BlockFi makes your idle crypto work for you by lending them out to high quality institutions for a return.
Watch their co-founder Flori Marquez address some common concerns on YouTube:
If you don’t want to manage wallet keys, just not into the whole DeFi craze or just want to compound your crypto or stablecoin earnings, give BlockFi a try – you might grow to like them.
Sign up with BlockFi and get up to US$250 crypto bonus in BTC.
- Earn high yields on stablecoins and crypto
- User friendly app and web interface
- Recurring trades to buy crypto
- USD wire transfer in to get started
- Free withdrawals once a month
- High risk, high reward - potential to lose 100% of your funds
- Funds not regulatory backed or insured
- Not your keys, not your crypto