BlockFi is a New York City-based financial crypto exchange that paid interest on cryptocurrency balances held in accounts.
I had a portion of my assets on deposit with them starting in September of 2019 through Spring of 2022 and didn’t have any problems. Their customer service was excellent and easy to work with. Fortunately, I also didn’t have any trouble withdrawing all of my assets before they declared bankruptcy. (Whew!)
BlockFi Bankruptcy
BlockFi has declared bankruptcy and it isn’t clear yet what kind of options will exist for people who had assets on their platform. It’s been ugly. When Three Arrows Capital went bankrupt they appear to have defaulted on large loans from BlockFi. In order to survive, BlockFi cut a deal with FTX to try and continue operating but when FTX went bankrupt it appears that it might have left BlockFi even worse off than before.
So, BlockFi is looking very dead. Maybe they will come out of Bankruptcy as an operating company but no one can say at this point. Unfortunately their brand is in bad shape. Hard to imagine how they would have the trust of customers again after the current circumstances.
BlockFi Interest Rate Details:
BlockFi paid interest on several different cryptocurrencies. As the market matured the complexity of their rates increased and also trended downward.
Recent Rates Were: (An example from before they went bankrupt.)
| Currency | Amount ** | APY |
|---|---|---|
| Bitcoin (Tier 1) | 0 – 0.10 BTC | 4.5% |
| Bitcoin (Tier 2) | 0.10 – 0.35 BTC | 1.0% |
| Bitcoin (Tier 3) | > 0.35 BTC | 0.1% |
| Ethereum (Tier 1) | 0 – 1.5 ETH | 5% |
| Ethereum (Tier 2) | 1.5 – 5 ETH | 1.5% |
| Ethereum (Tier 3) | > 5 ETH | 0.25% |
| Litecoin (Tier 1) | 0 – 20 LTC | 3.5% |
| Litecoin (Tier 2) | > 20 – 100 LTC | 1% |
| Litecoin (Tier 3) | > 100 LTC | 0.1% |
| Chainlink (Tier 1) | 0 – 100 LINK | 2.5% |
| Chainlink (Tier 2) | 100 – 500 LINK | 0.2% |
| Chainlink (Tier 3) | > 500 LINK | 0.1% |
| US Dollar Coin (Tier 1) | 0 – 40,000 USDC | 9% |
| US Dollar Coin (Tier 2) | > 40,000 USDC | 8% |
| Gemini USD (Tier 1) | 0 – 40,000 GUSD | 9% |
| Gemini USD (Tier 2) | > 40,000 GUSD | 8% |
| Pax Dollar (Tier 1) | 0 – 40,000 PAX | 9% |
| Pax Dollar (Tier 2) | > 40,000 PAX | 8% |
| Pax Gold (Tier 1) | 0 – 1.5 PAXG | 3.25% |
| Pax Gold (Tier 2) | 1.5 – 5 PAXG | 0.2% |
| Pax Gold (Tier 3) | > 5 PAXG | 0.1% |
| Tether (Tier 1) | 0 – 40,000 USDT | 9.5% |
| Tether (Tier 2) | > 40,000 USDT | 8.5% |
| Binance Dollar (Tier 1) | 0 – 40,000 BUSD | 9% |
| Binance Dollar (Tier 2) | > 40,000 BUSD | 8% |
| DAI (Tier 1) | 0 – 40,000 DAI | 9% |
| DAI (Tier 2) | > 40,000 DAI | 8% |
| Uniswap (Tier 1) | 0 – 100 | 3.25% |
| Uniswap (Tier 2) | 100 – 500 UNI | 0.2% |
| Uniswap (Tier 3) | > 500 UNI | 0.1% |
| Basic Attention Token (Tier 1) | 0 – 4,000 BAT | 1% |
| Basic Attention Token (Tier 2) | 4,000 – 20,000 BAT | 0.2% |
| Basic Attention Token (Tier 3) | > 20,000 BAT | 0.1% |
Is BlockFi Safe? <= NOPE!!!
- What if BlockFi gets hacked?
- BlockFi partnered with Gemini to hold their funds in custody to have a high degree of security. A BlockFi breach, in theory, would not expose assets to loss. Gemini is a much larger and better-insured company. Nothing is 100% guaranteed however.
- What if BlockFi goes out of business?
- This is a consideration as well. In the event of a catastrophic business failure, all bets are off. If it turns out that leadership embezzled funds or mismanaged the business so badly that it was secretly in terrible debt I don’t know if client funds would be protected. If you know, please send me a note so I can update this post.
- We’re going to find out the hard way now to see what happens.
Is Blockfi Legit?
As far as I can tell, yes they were legit. Investors in the company included Fidelity Financial and other major players. Additionally, by choosing New York City as their headquarters location, BlockFi was subject to a much more difficult regulatory approval process than companies in other locations.
There had been some hand-wringing about BlockFi’s exposure to downside risk due to holding a big chunk of Grayscale Bitcoin Trust’s shares. (GBTC) However, subsequent raises and business successes since the time of acquiring that stake look like there has been ample opportunity for BlockFi to recover from the big swing in GBTC’s NAV.
Turns out what we needed to worry about more were the credit-worthiness of some of their larger clients who were open lines of credit with BlockFi.
BlockFi is open about its leadership, roadmap, and company culture. The crypto and blockchain industry is still new enough that there is risk of a collapse of the space, BlockFi seemed to be in the top tier of “legit-ness”. That legitimate status was not, however, enough to save them from market contagion and fraud by major partners.
BlockFi is a cautionary tale. They did a lot of things right. Maybe most things in terms of running their business except for one of their key responsibilities. They failed to accurately assess risk of loan defaults and protect themselves from that event. To be fair… they have A LOT of company in that regard. The lesson of the current meltdown in the market might be that the business model they represented is simply too high-risk to execute on at all.
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