BlockFi is a crypto-currency platform that allows you to earn passive income paid in crypto-currencies or even take crypto loans. BlockFi is centralised, which involves other risks, unlike protocols such as Compound but also sometimes more interesting and stable rates. In this article, we will review and analyse the risks of using BlockFi to earn passive income on your crypto!
BlockFi: the platform to save or borrow cryptos
Launched in 2017, BlockFi was one of the first firms to offer crypto-asset collateralized loans. On top of that, by saving them on the platform, the company allows users to gain interest in their cryptocurrencies.
The company has also recently completed a $30 million Series B fundraiser. A sum of $18 million in addition to an initial fundraiser. These funds will mainly be allocated to projects aimed at increasing acceptance.
BlockFi relied on a model that has since gained unanimity in the ecosystem of crypto lending to achieve such an ambitious target. BlockFi, therefore, uses part of user deposited funds to lend them to traders, institutions, or businesses looking to borrow bitcoin or other cryptos.
The investors will receive a portion of the interest paid on the BlockFi loans by the borrowers on a monthly basis.
The composition of interests is one of the strengths of BlockFi. Indeed, interest is compounded every day on the platform. That is, your interest is calculated on the amount deposited, plus the interest generated so far every day. Unfortunately, even if the calculation is daily, every first of the month the payment of interest occurs. Compared to platforms like Nexo or Binance, which provides daily payment, a small minus.
The products offered by BlockFi
Over the years, BlockFi has been able to expand its product range by adding new cryptocurrencies to its offer, for instance. Here is a quick overview of the possibilities that the platform provides.
Earn between 3.6 and 9.3% on your cryptos
The BlockFi Interest Account is one of BlockFi ‘s proposals-one of the most interesting, in our opinion. This sort of “savings account” crypto-version allows you to generate interest in stored cryptocurrencies. Bitcoin (BTC), Ethereum ( ETH), Litecoin ( LTC), USD Coin (USCD) and Gemini Dollar (GUSD) can be saved on this BlockFi service.
The rates differ on a monthly basis and depend on the “saved” amount. However, so far and in our experience over the past year, they have remained comparatively stable. The rates are as follows at the time of writing this article:
Since the end of 2019, BlockFi has introduced a new feature, Flex Payments, to its savings accounts. This service enables users to choose which cryptocurrency they want to be interested in. For instance, if you have BTC and you want to recover ETH, this solution is ideal: you can lend your BTC balance and receive the compound interest in ETH. I am particularly bullish on ETH. So all my interests are paid on ETH.
Borrow cryptos using BlockFi
BlockFi offers collateralized crypto loans with a minimum sum of $5,000 in connection with its savings service. The collateralization ratio on BlockFi is flexible. From 20% Loan to Value ratio to 50%, which means that $5,000 can be borrowed with a ~$10,000 collateral contribution (if you go for 50% Loan to Value ratio).
The higher the Loan to Value ratio, the higher the risk for BlockFi, the higher the interest rate you have to pay on your crypto.
This figure is based on a proven model, “according to BlockFi terms and conditions, to limit the exposure to risk.”
Loan to Value Ratio
Example of collateral needed for borrowing $5000 loan on BlockFi. Interest on BlockFi depends on Loan to Value ratio. Source: BlockFi
Borrowing crypto on BlockFi is not the same as a mortgage on an apartment. BlockFi loans are interest-only loans. Interests are paid to service the loan, but you do not have to pay the capital on a monthly basis for example. You pay back all the loans to unlock your collateral.
Crypto credit card with cashback on BlockFi
For now, this service is still at the project stage at BlockFi. However, the company has already announced its desire to release a crypto credit card that will offer cashback during the year 2020. With cashback rates already announced as being the “highest in the sector”:
“ [On every payment] you will be able to benefit from a cashback rate in BTC, the highest in the industry, for each transaction made with the card. “
Although this service is centralized and thus not subject to the flaws and other smart contract attacks that can be observed from time to time in DeFi ‘s decentralized loan ecosystem, there are still risks to the services offered by BlockFi.
First of all, it’s good to remember that BlockFi is not part of DeFi ‘s protocols, despite appearances. Indeed, the BlockFi platform is all that there is more centralized … And that includes the inherent risks, particularly with regard to asset custody and the potential risk of default (such as any cryptosphere fund-keeping platform, that being said).
“BlockFi implements advanced risk management practices and risk mitigation technology, but you should not view the BlockFi Interest Account as an FDIC or SIPC insurance savings account or brokerage account.
The framework of the guarantees applicable to these funds depends on the particular conditions offered by the Gemini exchange, their service provider who keeps the funds.
Conclusion & Review on BlockFi
BlockFi appears to be a good alternative, as we have seen, to generate interest in dormant cryptos, or to take out a loan thanks to crypto collateral. The platform, however, remains centralized, a double-edged feature: on the one hand, this allows for more attractive rates; on the other, centralization exposes people to the risks associated with a centralized structure’s conservation of funds.
BlockFi remains a project to follow if you are interested in crypto lending and looks like a good opportunity, provided you invest with full awareness of the risks!
BlockFi could be a great way for you to diversify your portfolio and to start generating passive income. The more passive income you generate, the closer you get from financial freedom.
I am not a financial advisor and this is not financial advice. However, if you feel like opening an account after reading this review of BlockFi, you can use the link here. If you use this link, we will both earn 10USD in BTC.