BlockFi is a custodial product that allows you to loan or earn interest on your crypto.
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Reviews for BlockFi
[Using BlockFi] isn’t hodling. Not only are you not controlling your private keys, you’re just lending money to a start up that you may or may not ever get back. You own corporate debt, you no longer own BTC.
The corporate debt that you own is BTC denominated. It’d be very similar to buying High yielding corporate debt in USD and buying BTC futures to gain BTC price exposure.Full review
I put 10 BTC in my BlockFi compound interest account to earn a return on top of my Bitcoin return....
I’ve been a BTC HODLer for a while now. I resisted investing in alts and ICOs, but earning interest via lending to primarily large counterparties via BlockFi interested me. To be clear, you are being compensated for RISK. There is a chance you can lose all your coins.
I spent quite a bit of time with the BlockFi team in person at their NYC office, and via e-mail over the course of a few months to dig into how the process works. The TL;DR of how BlockFi generates interest is by lending your coins to institutional and corporate borrowers.
To ensure that they get paid back, BlockFi typically lends crypto on overcollaterized terms (similar to MakerDAI). They also have an automated risk management system that monitors positions 24/7. BlockFi also has the ability to terminate a borrow in a timely fashion.
In the event of a bankruptcy, your funds are structured to be at the top of the capital stack, higher than BlockFi employee capital/investor equity. This means BlockFi would take a loss before any client would. Funds are custodied with Gemini.
I will be leaving my 10 Bitcoins in BlockFi for at least 1 year as a demonstration of skin-in-the-game for my followers, and a testament to my conviction in the BlockFi team. I will let everyone know when I withdraw. Again, this is RISKY. Lender beware.Full review
What is a reasonable return to lend out your Bitcoin? Is 6% good? Is 15%? It entirely depends on the counterparty risk. You're not earning money for lending out BTC, you're earning money for lending to a specific counterparty like BlockFi.
So, what's a reasonable yield? Junk bonds in the US have typically paid 4-6% over treasury rates. For a risky start-up, uncollateralized loans would typically be more like 15-25% over treasury yields.
Short-term treasury yields are currently 2.5%, so I'd look for ~22%+ yield to lend my BTC to a start-up at a minimum. Now, this superficial analysis is unfair to Blockfi and others who would rightly argue this isn't a purely uncollateralized loan.
On their website, Blockfi says they "typically lends crypto on overcollateralized terms." The specifics matter a lot here. If that collateral was legally owed to you as a specific lender, these should probably be viewed as collateralized loans. They're probably not.
If you as the lender have no legal right to specific collateral, then you're simply a creditor to a single company, Blockfi (or whomever else), and you might not even be a senior creditor (I don't know.) I'm guessing here on the legal structure, feel free to correct me....
TDLR: the growth in crypto lending markets is awesome for the ecosystem (separate topic), but is extremely risky today however it's done, and I think the yields are far too low to price that risk from my perspective.Full review
[I] saw a proprietary trading shop raising $150m debt for 15% interest from institutional investors to trade and lend. They had a killer team and performance chart to support.
Blockfi is offering 6% to retail investors with basically zero disclosures + no prior performance stats....
So...it's fair to be skeptical of the risk/reward profile of new interest bearing product being promoted as deposit-like product which it clearly is not.Full review