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What is BlockFi?
BlockFi is an American company based in New Jersey launched in 2017, and funded by players like ConsenSys Venture or Galaxy Digital. A major player therefore, far from other DeFi projects such as Uniswap, which is developed by a computer science student.
They are notably partners with Gemini, an American exchange platform which has various accreditations, also known to be the property of the Winklevoss brothers. Gemini allows BlockFi to offer their users to trade in cryptocurrency, as well as US dollars. This partnership forces BlockFi to be just as centralized as Gemini, and to set up a KYC policy strict. There is at least one bright spot, and that is that users who want to borrow funds while keeping their crypto-assets don't have to worry about security.
The services offered by BlockFi
BlockFi offers its users two main services related to the use of their cryptocurrencies. The first of these services is obtaining annualized interest greater than 5% by lending their crypto-currencies, and the second is the possibility of contracting loans by pledging their own cryptos. Let's find out together what these different services are, as well as their operation.
Receive interest with your cryptocurrencies
Here, we'll see how BlockFi manages to offer its users such competitive rates, and how the cryptocurrency lending system works. The company offers its users the ability to quickly earn interest on three cryptos today: Bitcoin,Ethereum As well as Gemini Dollars (GUSD), which is the stablecoin Interest is paid directly to users' accounts at the start of each month and can be distributed in another crypto, making it easy to diversify one's portfolio.
Interest does not come from inflation of proof-of-stake cryptos (via thestaking). The explanation given by the company to explain these so attractive rates (up to 8.6%) is as follows: BlockFi will in fact lend your funds in turn, to institutional investors or companies looking to obtain crypto -coins or to be liquidated.
In order to use users' money securely, loans are subject to a security deposit, thereby reducing the risk of default.
BlockFi's platform also makes it possible to take out loans by depositing a guarantee on the platform. But while some DeFi protocols make it easy to borrow by over-guaranteeing the loan without requiring KYC, BlockFi's operation is much more cumbersome. In fact, to be able to access these loans, you will first need to transmit information relating to your identity, as well as a copy of your identity card and a photo.
Loans can be taken with different currencies, which can be fiat currencies or stablecoins, GUSD or USDC, and which can be credited to a bank account or wallet. Different cryptocurrencies can also be used as collateral for these loans. Today, three cryptocurrencies can serve as collateral: it is the Bitcoin, of the Ether and Litecoin. The interest of placing a guarantee when contracting a loan is the limitation of the risks for the creditor, who can, if the borrower defaults, limit the breakage by seizing the security deposit, as can be seen in the classic home loans. The difference being that in the case of mortgage loans, the borrower retains the use of the property given as collateral, unlike borrowers on BlockFi.
Cryptocurrencies pledged as collateral when contracting a loan on the BlockFi platform, however, remain exposed to market fluctuations. Indeed, once the loan has been validated by both parties and the contract is signed, the guarantee funds are transferred to Gemini wallets and remain in the form of cryptoassets. If the market plunges and the value of the security deposit drops too much, BlockFi may liquidate the security deposit to cover the losses. This is done in several stages of liquidation, initiated when the collateral loses more than 50% of its value. The borrower then has 72 hours to re-credit his guarantee fund and increase the guarantee ratio, in order to prevent the whole from being liquidated.
Calculation of interest
The calculation of interest on a loan taken out through BlockFi's services is based on the option chosen by the borrower. The options offered can influence the price of interest. It includes, for example, the value of the loan taken out, as well as the loan guarantee ratio. On the other hand, the choice of the cryptocurrency used as collateral does not influence the interest of the loan.
You can find a calculator on the BlockFi site, which will allow you to estimate the interest as well as the monthly payments you will have to pay.
Finally, BlockFi performs a check of your loan history, as well as your geographic location to determine interest rates. Interest rates will not be the only rates counted to determine the percentages of annual fees, which are also made up of origination commissions for example.
The risks of using BlockFi
If BlockFi, by virtue of its centralized structure, limits the risks of exploiting vulnerabilities, or rather groups them together on the company's infrastructure; this does not mean that there is no risk in using the platform. Indeed, in terms of hacking, the architecture of the services offered inevitably multiplies the potential vulnerabilities, with the management of user accounts, transactions to these accounts, as well as transactions to various BlockFi partners such as Gemini. This is not necessarily a surprise, and we find these types of risks in all centralized financial services.
But these are not the biggest risks taken by users lending their cryptocurrency through BlockFi services. Indeed, the way of proceeding of the company makes the protocol very opaque, and certain questions remain currently unanswered. These are mainly linked to the famous interest rates that the platform offers, which are quite high. If rates around 4% exist in the ecosystem, this does not concern cryptocurrencies like Bitcoin or Ethereum but rather stablecoins like Dai. And BlockFi offers 8% interest! These are therefore exceptional rates that are paid each month to users, and whose origin remains uncertain.
Because there is very little information about the source of interest and the players who allow borrowing at these record rates. According to BlockFi, these are mainly institutional players as well as companies in the sector, but this remains very unclear. There is reason to ask questions about how BlockFi works: are we in front of a Ponzi scheme or a similar scheme? It does not seem credible, even if it is possible. One of the more likely alternatives is this: Without financing the interest from newcomer funds, BlockFi would use a reserve fund, or investor money, to pay "interest" back to users. This strategy, which could be likened to selling at a loss, would allow them to gain market share in a very young and competitive industry, before switching to a profitable long-term strategy. And that's something that seems consistent with BlockFi's behavior in recent months: they recently declined without warning the maximum amount of bitcoin for which the 6% interest rate was guaranteed. Previously 10 BTC, this limit is now 5 BTC. Today, from 5 BTC, interest is reduced to 3.2%. The benefits offered to customers therefore seem to be gradually diminishing. they recently decreased without warning the maximum amount of bitcoin for which the 6% interest rate was guaranteed. Previously 10 BTC, this limit is now 5 BTC. Today, from 5 BTC, interest is reduced to 3.2%. The benefits offered to customers therefore seem to be gradually diminishing. they recently decreased without warning the maximum amount of bitcoin for which the 6% interest rate was guaranteed. Previously 10 BTC, this limit is now 5 BTC. Today, from 5 BTC, interest is reduced to 3.2%. The benefits offered to customers therefore seem to be gradually diminishing.
But if these open questions don't scare you off, you might want to try signing up with the site. We therefore offer you a tutorial below to create an account.
Register on BlockFi
To get started, you can click on this link to get to the registration page. On this page, complete the requested information: your e-mail address, your password, and your account type (individual). Then, check the first box ("I accept the terms and conditions"), which is mandatory.
The second box relating to SMS sending by BlockFi is optional.
Then, validate the Captcha and click on the CONTINUE button.
Then go to your mailbox. You should receive a confirmation email within the next few minutes. The latter, of very simplistic appearance as you will see below, contains a code that must be entered on the site.
To be eligible for a loan, you will need to complete your account with some information about your identity. Name, address, everything is on your personal page when you log in for the first time.
Again, the phone number is not required.
Once this information has been validated, this window will appear.
You will then need to provide BlockFi with a copy of the front of your ID card, as well as selfies taken with a webcam or phone.
At the end of the procedure, you can return to your personal page to deposit money, or take out a loan.
Obtaining a loan on BlockFi
Once your account is created, the procedure is extremely simple. When you click on the "New Loan" button in the menu at the top, this window appears:
You just have to choose which collateral to use (BTC, ETH or LTC), the dollar value of your loan, and click on "Calculate your offer".
You will then go to the second part of the window, which will allow you to choose the value of the cryptocurrencies that you are going to pledge, and to have an overview of the interest rate of the loan.
BlockFi loans have the advantage of being very easy to obtain, since they do not require you to sign a duplicate file to be returned by post or to take any health test as when taking out a loan to make a real estate purchase. However, their interest rates are quite high, as you will be able to see in person: between 10.44 and 12% for a loan of $ 5,000, in addition to a Bitcoin guarantee equivalent to $ 10,000 or 15,000 ... The best rate obtained by playing with the settings was over 6%, with a loan of $ 10,000 and a pledge equivalent to $ 50,000 of Bitcoin.
Compared to traditional lending organizations, which occasionally offer loans at 1 or 2% APR without asking for a gigantic deposit as a bonus, the interest seems limited for ordinary people. These loans are mainly intended, for now, for people with an already well-supplied portfolio, simply wishing to keep their cryptocurrency for the long term by using the loan money to finance other projects.