The BlockFi Business Model

How BlockFi Works

BlockFi is a FinTech company that enables users to buy and sell cryptocurrencies, borrow and lend out money, and soon spend it using its credit card.

BlockFi’s core product is the lending arm that allows users to earn interest on their existing crypto balances.

The money is then lent out to other crypto businesses who pay BlockFi interest on that cash – some of which is funneled back to the user. Lenders can earn up to 8.6 percent APY (annual percentage yield) on their crypto holdings.

Similarly, users can also borrow money (in the form of crypto) from BlockFi. The amount borrowed is dependent on the assets that the borrower currently holds in his or her BlockFi account.

Next, users can also trade cryptocurrencies on the platform. Available currencies include Bitcoin, Ethereum, Litecoin, or stable coins like Tether and USD Coin.

Currently, BlockFi is also working on a credit card product in cooperation with Visa. The card will allow users to make payments using their (crypto) account balance as well as earn cashback rewards.

Apart from retail investors, BlockFi offers a variety of products to institutional clients. Examples include spot trading, credit capabilities, crypto trusts, or margin trading.

BlockFi can be accessed by visiting the firm’s website or downloading its mobile applications (available on Android and iOS devices).

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Features Benefits

BlockFi can help you diversify investments and earn interest on crypto balances.

  • Trading: Buy, sell, or exchange various cryptocurrencies at competitive prices and start earning interest the moment your trade is placed.
  • Interest Account: Earn up to 8.25% APY. Interest accrues daily and is paid monthly. There are no hidden fees, no minimum balances.
  • Crypto-backed Loans: Borrow funds against your crypto assets, so you can get a loan while continuing to hold.
  • Credit: Bitcoin Rewards Credit Card lets you earn an unlimited 1.5% back in Bitcoin on every purchase.

The Federal Deposit Insurance Corporation (FDIC) does not cover digital assets like your crypto holdings, so your deposits have no insurance.

BlockFi and SEC Fines: Latest Update

The gripe with BlockFi’s Interest Account largely revolved around: 

  1. The consensus is that the BIA’s are actually securities, and the company hadn’t registered them.
  2. An inadequate disclosure of risk in site and marketing copy
  3. BlockFi issuing securities as well as holding more than 40% of its total assets in investment securities (such as loans of cryptocurrency assets to institutional borrowers).

BlockFi’s parent company settled, agreeing to pay a $50 million penalty to the SEC, cease its offers and sales of the unregistered BlockFi Interest Account, and attempt to bring its business within the provisions of the Investment Company Act within 60 days.

BlockFi paid an additional $50 million in fines to 32 states. 

BlockFi also announced it intends to register the offer and sale of a new lending product under  the Securities Act of 1933. The new product has not yet been registered nor disclosed.The full press release from the SEC can be found here.

Additional Information

BlockFi offers institutional services and works with investment funds, market makers, and other crypto-based businesses. Gemini is the company’s primary custodian and is a licensed NY trust company subject to cyber security regulations. Gemini stores 95% of assets in cold storage and 5% in hot wallets.

24/7 customer service is available with the AI-powered chat assistant or request to speak with a client service specialist.

Privacy Policy \ Legal \ Safety \ Security

BlockFi has a very comprehensive and accommodating privacy policy that clearly states their stances on their products and services.

Their privacy policy shows the information they collect when accessing their web application or using their products and services. They are also clear about the details they collect when you agree, communicate with, or engage with them and what they do with the information.  

By using their services, products, and website, you agree to their terms of Privacy Policy. If you do not agree, you cannot use their services, products, and web application.

BlockFi understands the importance of privacy, and they respect their clients' information and internet history. The website has strong SSL encryption that helps protect your activities on its website. 

Some of the information required of users may range from identity and transaction data on device information, financial data, visual data, etc. These pieces of information may be collected through obvious and non-obvious means. However, you have nothing to worry about since they are lawfully used. 

BlockFi doesn’t need and will never ask users for sensitive details. You may also check out their Privacy Notice for more information on how they acquire, use and protect your biodata.

Cryptocurrencies Available on BlockFi

BlockFi doesn’t offer many cryptocurrencies, though it does have some of the most popular ones, including: 

  • Bitcoin (BTC)
  • Ethereum (ETH)
  • Litecoin (LTC)
  • Bitcoin Cash (BCH)
  • Pax Gold (PAXG)
  • Uniswap (UNI)
  • DAI (DAI)
  • ChainLink (LINK)
  • Basic Attention Token (BAT)
  • Algorand (ALGO)
  • U.S. Dollar Coin (USDC)
  • Tether (USDT)

The BlockFi Mobile App

BlockFi has great mobile apps for iOS and Android users. This mobile app makes it a lot easier for you to manage your BlockFi account at any time and from anywhere. 

You can trade, view your balance, earn interest, borrow money – all on the mobile app.

Some of the trademark features within the BlockFi mobile app include:

  • Earn Up to 8.6% APY: Mobile users are provided the same account and incentives as desktop users. This means they can earn up to 8.6% APY on Stable coins and 6% on BTC. 
  • Sign Up and Start Earning: You can start and complete your registration on the mobile app without visiting their website. Once through with the signup, the wire transfer feature makes it easy for you to deposit funds directly from your bank and crypto wallet. 
  • Manage Everything: The mobile app provides a comfy platform to manage all the BlockFi products and services from. It also a convenient way to monitor your trades, transfer funds, and stay up to date with the latest happenings in the crypto world. 
  • Improved Login: With the app’s Face ID and fingerprints features, you’re only one click away from accessing your BlockFi dashboard.

How Does BlockFi Make Money?

BlockFi makes money via interest fees, withdrawal fees, spreads, sponsorship fees, crypto mining, as well as premiums collected from investments into other trusts.

Let’s take a closer look at each of these in the section below.

Interest Fees

The majority of the revenue that BlockFi generates comes from the interest fees that are paid from the loans it issues as well as its interest accounts.

When borrowing money, users, as well as institutions, take on a USD loan using their crypto holdings as collateral.

Borrowers can use up to 50 percent of the value of their crypto assets as collateral. Money can be borrowed for rates as low as 4.5 percent APR.

The actual interest rate is dependent on the amount of collateral posted, the amount of money borrowed, the length of the loan, as well as a variety of other factors.

Similarly, BlockFi users can also open a so-called interest account. Users can earn up to 8.6 percent APY by lending the money to BlockFi.  

The way BlockFi monetizes these accounts is by borrowing out the crypto to other institutions. BlockFi then collects interest fees on those loans – at an even higher rate than the one it pays to the account holder.

Lastly, BlockFi also makes money through withdrawal fees whenever a user wants to transfer their account balance out of BlockFi. The fees are listed here.

Spread

Back when BlockFi launched its crypto trading product (October 2020), it was advertised as commission-free.

However, while the company does not impose a percentage-based fee like many of its competitors, including Binance or Coinbase, trading on it nevertheless incurs hidden costs.

These costs are exemplified through the spread, which is the difference between the BUY and the SELL price.

For instance, if you BUY at 40.00 and the SELL price at that moment is 39.25, then the spread is the difference between the two (equal to 1.9 percent).

Since all crypto trades are routed through BlockFi, the company is able to direct those trades to the highest bidder. Looking at the example above, if there are two separate traders willing to issue a BUY order at the same time, then the order will be assigned to the person paying the higher price.

Additionally, when its trading product was announced, BlockFi also stated that it would sell aggregated and anonymized user data to other firms. This data may then inform their own investment decisions about a given currency.

Bitcoin Trust

In February 2021, BlockFi launched its so-called Bitcoin Trust. Later on, it launched an Ethereum Trust and a Litecoin Trust.

The investment trust allows retail and institutional investors to have their bitcoin assets managed by BlockFi Management LLC, a wholly-owned subsidiary of BlockFi.

The trust will issue shares through private placements to investors who are accredited in their respective countries of residence. The trust’s value reflects what BTC is held by it minus expenses or other liabilities.

Bitcoin that is held in the trust will be custodied by Fidelity Digital Assets Services through an enterprise-grade custody solution, which has been purpose-built for institutional investments.

BlockFi Management LLC, the sponsor of the trust, charges a sponsor fee of 1.75 percent on the money invested.

Mining

In May 2021, BlockFi announced it would begin to mine bitcoin through a partnership with Blockstream.

BlockFi has deployed miners at the Blockstream mining facility in Georgia, USA. The company will be seeking to expand its services and diversify revenue streams by accumulating bitcoin on its balance sheet with access to over 300MW of power capacity there.

Traditionally, miners face many hurdles such as high capital investments (to purchase hardware), mining rig optimization, as well as energy procurement. Blockstream, an experienced mining operator, can provide the underlying infrastructure and therefore minimize risk for its partners.

BlockFi generates revenue by the bitcoins it mines and amasses. Depending on the agreement between the two companies, it may pay a portion of those mined bitcoins as a reward to Blockstream.

Investing

BlockFi, because of its extensive capitalization as well as explosive revenue growth, is also heavily invested in other businesses.

The firm’s most notable bet is its investment in the Grayscale Bitcoin Trust (GBTC). In February 2021, SEC filings revealed that BlockFi holds 36.1 million shares (equal to a 5.66 percent ownership stake) of the trust.

At the time of filing, those shares had a combined value of $1.7 billion. Interestingly enough, just days after the investment was revealed, BlockFi launched its own trust product (see above).

BlockFi then collects the delta between the trust shares and the underlying net asset value of the bitcoin held by the trust.

BlockFi has been using some of the cryptos it holds for customers to generate revenue with the trade. Given that the trust has a six-month lockup period, the investment can pose some major risk if BlockFi needs to access the funds for liquidity purposes.

BlockFi Compared to Other Exchanges

BlockFiCoinbaseeToro
CoinsFewer than 20 cryptocurrencies150+ cryptocurrencies50+ cryptocurrencies
FeesNo additional trading fees, as spreads are priced in0.50% spread; trading fee between 1.49% and 3.99% (or $0.99 to $2.99 flat fee)0.75% to 4.9% spread (varies by crypto)
Wallet StorageKeep in BlockFi’s wallet or transfer to your own walletKeep coins on the exchange, in the Coinbase Wallet or transfer to your own walletKeep coins in the eToro account, eToro wallet, or transfer to your own wallet
Minimum trade$20$2$25

BlockFi Fees

BlockFi is unique among crypto exchanges as the company itself serves as market maker for all transactions. As a result, there are no fees to buy or sell cryptocurrency on the platform.

The platform does charge withdrawal fees, however. Users get one free withdrawal a month of Bitcoin, Litecoin and certain stablecoins supported on BlockFi. Subsequent withdrawals of these cryptos are charged a fee, which we’ve outlined on the table below. In addition, some supported coins get no free monthly withdrawal.

There is a small spread between the buy (ask) and sell (bid) prices offered on the exchange. The spread is typically 1%, but it can vary based on a coin’s liquidity.

BlockFi Fees Schedule
CryptoWithdrawal LimitWithdrawal Fee
Bitcoin (BTC)100 BTC per seven-day period0.00075 BTC *
Litecoin (LTC)10,000 LTC per seven-day period0.001 LTC *
Binance USD (BUSD)Dai (DAI)Gemini (GUSD)Paxos Standard (PAX)Tether (USDT)USD Coin (USDC)1,000,000 per seven-day period$50 *
Ethereum (ETH)5,000 ETH per seven-day period0.015 ETH
Chainlink (LINK)65,000 LINK per seven-day period2 LINK
Pax Gold (PAXG)500 PAXG per seven-day period0.035 PAXG
Uniswap (UNI)5,500 UNI per-seven day period2.5 UNI
Basic Attention Token (BAT)2,000,000 BAT per seven-day period60 BAT
*Users get one free withdrawal per month; fee charged for each subsequent withdrawal in the same month.

BlockFi Loan Fees

Margin loans charge a 2% origination fee. Borrowers are eligible to borrow up to 50% of the value of their account, with margin rates based upon the loan-to-value ratio (LTV) that start at 4.5% and peak at 9.75%.

For example, a 20% LTV rate would cost 4.75% interest on the loan, while a 50% LTV would incur the 9.75% rate.

Crypto-Backed Loan Rates LTV Rate Interest Rate Origination Fee 50%9.75%2% 35%7.90%2% 20%4.50%2%

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