BlockFi is a crypto wealth management system which provides interest yields to investors who use BlockFi Interest Account to store their cryptocurrencies i.e. Bitcoin (BTC), Ether (ETH) and Gemini (GUSD). The Manhattan based firm also offers cryptoasset backed US Dollar loans as a non-bank entity to crypto owners.
Since its inception in 2018, BlockFi has garnered funds of about $78.7 million over 5 rounds. By April 2019, the company saw a record deposit of more than $50 million in interest bearing accounts.
Many crypto owners store their cryptoassets for long times in wallets or exchanges. Hodl is the crypto slang for this buying and holding. When in storage, these cryptoassets do not take active part in building wealth for the hodler. BockFi targets this stagnancy and provides an interest return on the deposited cryptocurrencies. Customers can gain up to 8.6% returns annually. Paid out every month, the interest is compounded increasing yields upto 8.8%. This means that a deposit of 1 BTC will see an increase in value to 1.088 BTC after a year. The BlockFi Interest Account does not require a minimum deposit balance for the interest returns to start compounding.
The deposited crypto is stored in a unique wallet address which is generated by Gemini, a digital asset exchange and custodian regulated by New York State Department of Financial Services (NYSDFS). This means that Gemini is subject to capital reserve requirements, cybersecurity requirements, and banking compliance standards declared by the Department of Financial Services and the New York Banking Law. The cold storage of Gemini is a secure, access-controlled facility that is protected from cyber attacks. Once transferred, the funds are not accessible to the borrower until the loan is paid off.
BlockFi uses the funds deposited in their interest accounts and lends it to institutions and corporations that are trusted and have been audited in detail. To further ensure the repayment and loan performance, BlockFi uses overcollateralization as a form of credit enhancement. This means that the loan portfolio offered is larger than the security it backs. This way even if the underlying loans are late or default, the principal and interest payments can be made. BlockFi also employs risk management systems which monitor position and conditions of loans and can execute a termination of borrow in a timely fashion. The risk management also extends to the triangle fashion of capital where consumer capital is stacked above the capital of Blockfi and client incentives. This way, BlockFi risks its own business before eating into client capital. It’s important to keep in mind that BlockFi is a non-bank entity which means there is no cash or securities insurance (FDIC or SIPC) in play.
The chart shows the percentage annual yield on BTC, ETH and GUSD. For 1 to 5 BTC, the annual return rate is 6.2% and for any BTC deposit more than this, a rate of 2.2% will be applicable. This means that for the deposit of 6 BTC, 5BTC will harvest a return of 6.2% while 1 BTC will harvest 2.2% annually.
Usually the interest payed every month will be in the same currency as deposited but BlockFi also offers Interest Payment Flex. This allows customers to diversify their cryptoassets by collecting returns in any one of the offered cryptocurrency. A consumer holding GUSD, a regulated stablecoin, can get returns in ETH, BTC and likewise. This is an effective method to use dollar cost averaging to enhance exposure to volatile cryptocurrencies. Similarly, a user can harvest interest from BTC and ETH and fall back to safer options i.e. GUSD to protect assets from volatility reactions.
Withdrawal of assets from BlockFi Interest Accounts (BIA) is a simple process. A withdrawal can take from 15-45 minutes to process and the effect will be displayed in your BlockFi account in one business day. An Interest Account is entitled to one free withdrawal every month on one currency but after that, a minimal fee is charged for BTC and ETH while GUSD users can withdraw any amount in the specified limit, free of charge.
BlockFi offers customers to leverage their cryptoassets to borrow fiat currencies. Just like collateralized loan, customers stake cryptocurrency assets and receive fiat money. People who have invested in cryptocurrencies and are of the view that their asset value will rise over time can use this option to secure USD loans which include tax benefits while they still keep on hodling crypto.
Consumers who are looking to diversify their investments, payoff taxes or refinance high-cost debt can leverage their cryptoassets. Since cryptocurrency hasn’t been working out with traditional banks yet, securing loans from them on the basis of crypto doesn’t work out. Instead of selling your cryptoassets on the market, you can request loans from BlockFi while simultaneously keeping your assets intact.
To receive loan, BlockFi will charge ad APR (Annual percentage Rate) which is the total rate you will be charged over the duration of your loan. This includes origination fees and interest rate. Origination Fees is usually 1-2% of the loan and depends on the consumer’s credit history, amount of loan and location while interest rate for BlockFi starts from 4.5%. Combined, a customer is charged 6.5% over a period of 12 months for a sample loan.
Compared to other lenders, an interest rate of 4.5% is very affordable. For comparison, US Bank provides personal premier loan at 7.49-17.99% APR but without an origination fee.
BlockFi offers interest only loans which means that consumers who receive loans only have to pay interest over the term of the issue and then can return the payment in full time. Most other lenders provide amortized loans which requires scheduled payments applicable to both principal loan as well as the interest which means that consumer has to pay both principal and interest over the duration of the period of the loan in equal installments. For BlockFi, you do not have to have that much cash on hand which provides a relative flexibility in usage of the cash especially in long term investments like real estate.
BlockFi offers three modes for LTV (Loan to Value) ratio – 20%, 35% and 50%. As the LTV value goes up, the lesser collateral is needed by the firm and the more the borrower has to pay in interest returns. Users can get loans on three cryptocurrencies – BTC, ETH and LTC. As the case of crypto volatility, if the value of your collateral falls down a specified value, a Margin Call happens. The customer has to pay additional collateral to bring LTV back to normal ratios.
After applying for loan, BlockFi team will contact you in one business day and the application-to-funding can be as quick as 90 minutes. Together, Interest Accounts and Crypto Loan offers a unique wealth growing opportunity for people interested in cryptocurrencies.