August 30, 2021 12:00 PM PT

How Does BlockFi Make Money

Read more about BlockFi
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BlockFi lets you earn interest on your crypto and take loans against the value of your coins. But how does BlockFi make money? Keep reading to find out.

BlockFi is a crypto platform that offers high-interest accounts, trading, and crypto-backed loans.

Best of all, their business model gives them the power to offer all this for low fees.

How is that possible? And where does their revenue come from?

Read on to find out how BlockFi makes money, and whether it's a trustworthy platform.

What Does BlockFi Have to Offer?

To understanding how BlockFi makes money, you'll need to understand what services they offer.

BlockFi Interest Accounts:
For retail customers, BlockFi's main offering is their BlockFi Interest Accounts. Users can earn up to 8% interest.

There are no fees and no minimum deposit.

Interest is paid monthly in tiered rates and decreases as deposits reach certain thresholds. While the rates may change over time, this is what they offered at time of writing:

CryptocurrencyAmountInterest (Paid Monthly)
Bitcoin (Tier 1)0 - 0.10 BTC4.5% APY
Bitcoin (Tier 2)> 0.10 - 0.35 BTC1.0% APY
Bitcoin (Tier 3)> 0.35 BTC0.1% APY
Ethereum (Tier 1)0 - 1.5 ETH5% APY
Ethereum (Tier 2)> 1.5 - 50 ETH1.5% APY
Ethereum (Tier 3)> 50 ETH0.25% APY
Litecoin (Tier 1)0 - 20 LTC4.75% APY
Litecoin (Tier 2)> 20 - 1001% APY
Litecoin (Tier 3)> 100 LTC0.1% APY
USD Coin (Tier 1)0 - 40,000 USDC8% APY
USD Coin (Tier 2)> 40,000 USDC5% APY
Gemini Dollar (Tier 1)0 - 40,000 GUSD8% APY
Gemini Dollar (Tier 2)> 40,000 GUSD5% APY
Tether (Tier 1)0 - 40,000 USDT8% APY
Tether (Tier 2)> 40,000 USDT5% APY

How much can I earn on BlockFi?
BlockFi interest rates depend on which cryptocurrency you deposit and how much. Their tiered payment system gradually decreases interest rates the more you hold in your account.

Crypto-backed Loans:
Users can borrow USD, GUSD, and USDC for as much as 50% of the value of your crypto collateral.

Loan interest rates are tiered and depend on the currency and LTV (loan-to-value) ratio, ranging from 20% - 50%.

The LTV is the value of your loan as a percentage of the value of your collateral. For example, a $500 loan with $1,000 of collateral would have an LTV of 50%.

LTV (loan-to-value ratio)Interest Rate
50% LTV9.75%
35% LTV7.9%
20% LTV*4.5%

*Available only for BTC-backed loans valued up to $20k USD.

New loans incur a 2% origination fee regardless of the LTV. You should receive your loan the same day you make your deposit. There are no penalties for prepaying back your loans.

Rewards Card:
BlockFi has also partnered with Visa to offer a Bitcoin Rewards Credit Card. By using it to shop, users can earn 1.5% cash back, paid in Bitcoin, on their purchases.

They're offering 3.5% cash back on purchases made within the first three months, and 2% on amounts spent over $50,000 annually. The card also works with Apple Pay and Google Pay.

How Does BlockFi Make Money?

While BlockFi is made possible by retail users, they aren't necessarily its primary customers. A lot of BlockFi's business comes from lending out crypto to institutional and corporate borrowers including:

  • Traders and investment funds
  • Over the counter (OTC) market makers
  • Businesses that need cryptocurrency to provide liquidity

It all starts with BlockFi's interest accounts and crypto-backed loans. The high rates of return incentivize everyday investors to leave their crypto with BlockFi, essentially loaning it out for as long as they choose to leave it on the platform.

BlockFi then lends it out at a higher rate to the big borrowers listed above. Their interest payments essentially make BlockFi's business model function.

BlockFi can keep a share of the payments while offering the rest to users whose deposits made the loans possible in the first place.

Of course, BlockFi makes money in other ways as well. This includes origination fees on crypto-backed loans, the bid/ask spread charged on the exchange, crypto mining, withdrawal fees, premiums on investments into other trusts, and sponsorship fees.

Withdrawal fees vary by currency. Here are some examples:[1]

CryptocurrencyWithdrawal LimitWithdrawal Fee
Bitcoin100 BTC / 7-day period0.00075 BTC
Ethereum5,000 ETH / 7-day period0.02 ETH
Litecoin10,000 LTC / 7-day period0.0025 LTC
Chainlink65,000 LINK / 7-day period0.95 LINK
USD Coin1,000,000 / 7-day period$10.00 USD
Gemini Dollar1,000,000 / 7-day period$10.00 USD
Tether1,000,000 / 7-day period$10.00 USD
Uniswap5,500 UNI / 7-day period1 UNI
Basic Attention Token2,000,000 BAT / 7-day period35 BAT

Crypto-backed loans incur an Origination Fee of 2%.

BlockFi's Spread, charged on cryptocurrency trades, ranges from 0.7 - 1.5%.

Can I Trust BlockFi?

It's important to remember two things. First, there is an inherent risk in trading crypto as well as lending it out, no matter the interest rate. Second, BlockFi appears to be doing everything they can to keep your coins and your money safe.

Gemini is BlockFi's primary custodian. Gemini, licensed and regulated by NYDFS (New York Department of Financial Services), is known for prioritizing security and regulatory compliance over all else.

Here are some of the security features BlockFi uses:[2]

  • Two-Factor Authentication: Via authenticator app
  • Address Allowlisting: Choose which wallets you want your crypto to be transferred to
  • PII Verification: To confirm who is using an account
  • Cold Storage: Most user assets are kept offline in cold storage
  • Insurance: Cash funds deposited with Gemini are FDIC insured for up to $250,000 per customer. Digital assets are insured against theft as long as it isn't determined to be the fault of the user.

To ensure the safety of funds held in BlockFi Interest Accounts, BlockFi's institutional borrowers are held to over-collateralized standards just like borrowers using their crypto-backed loans, with a maximum LTV of 50%.

They also run an automated risk management system that always monitors open positions, offering them the ability to terminate a loan should the need arise.

BlockFi also manages reserve balances to ensure users are reliably able to withdraw their crypto when they want to.

Can you lose money on BlockFi?
Yes, it is possible to lose money on BlockFi. Despite everything they do to keep client funds safe, like employing Gemini as their primary custodian and taking over-collateralized loans, there is a chance of losing the money you deposit.

BlockFi stated that "As of March 31, 2021, no borrowers showed signs of default on payment and, to date, BlockFi has never incurred a lending loss on any of its loans." But they also warn, "This is not a risk-free product and loss of principal is possible."

Bottom Line

Ultimately, the way that BlockFi makes their money is multifaceted.

They do make some of it from their everyday investors who end up paying spreads on their crypto trading, origination fees on crypto-backed loans, and withdrawal fees when they want to take their cryptocurrency off the platform.

But much of their business involves catering to large-scale, institutional and corporate investors.

By loaning crypto to them at a higher rate than they borrowed it for, BlockFi is able to pay generous interest rates to their users as well as taking a percentage for themselves.

References

  1. ^ "Are there any withdrawal fees?": BlockFi, 2020.
  2. ^ "Security": BlockFi, 2021.
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Jeremy Harshman is a protector of art and writing at CreditDonkey, a crypto comparison and reviews website. Write to Jeremy Harshman at jeremy.harshman@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

Note: This website is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content. You do not have to use our links, but you help support CreditDonkey if you do.

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