August 31, 2021 12:00 PM PT

How Does BlockFi Work

Read more about BlockFi
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BlockFi is a popular crypto platform offering high interest accounts and the ability to take loans against the value of your coins. Find out how it works.

Known for impressive APYs and low fees, BlockFi is a popular crypto platform.

But how exactly does their business model work? And can you trust them with your crypto?

Find out how BlockFi works in this guide. Plus, get an overview of their main features to see if it's right for you.

How Does BlockFi Work?

Unlike most popular cryptocurrency platforms, BlockFi is not primarily an exchange (though they do offer several cryptocurrencies for trade.)

BlockFi is, above all, a cryptocurrency lender.

Their two main features, the BlockFi Interest Accounts and crypto-backed loans, involve lending out your crypto at high interest rates to institutional and corporate borrowers.

The interest payments made by these big borrowers are what make BlockFi running. BlockFi keeps a percentage of the interest payments and shares some of it with users who opened interest accounts or took out loans.

This accounts for a good portion of the money BlockFi makes, but not all of it. Review the other ways BlockFi makes money further down in this article.

BlockFi's Interest Accounts

Users can earn up to 9.0% interest on their cryptocurrency, paid monthly. There are no fees, and there is no minimum deposit.

Supported coins:

  • Bitcoin, Ethereum, Litecoin, Chainlink, USD Coin, Gemini Dollar, PAX, PAX Gold, Tether, Binance Dollar, DAI, Uniswap, Basic Attention Token

They pay interest in tiered rates on most coins, where rates decrease as deposits reach certain thresholds. For example, these were the rates for Bitcoin and Ethereum at time of writing:

BlockFi

Earn Interest on BTC - Up to 4.5% APY

AmountAPY
0 - 0.10 BTC4.5%
> 0.1 - 0.35 BTC1.0%
> 0.35 BTC0.1%

BlockFi

Earn Interest on ETH - Up to 5% APY

AmountAPY
0 - 1.5 ETH5%
> 1.5 - 50 ETH1.5%
> 50 ETH0.25%

How much can I earn on BlockFi?
How much you can earn with BlockFi depends on which cryptocurrency you hold and the size of your deposit. They operate a tiered payment system with larger deposits receiving lower percent returns.

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 USDC9% APY
USD Coin (Tier 2)> 40,000 USDC8% APY
Gemini Dollar (Tier 1)0 - 40,000 GUSD9% APY
Gemini Dollar (Tier 2)> 40,000 GUSD8% APY
Tether (Tier 1)0 - 40,000 USDT9.5% APY
Tether (Tier 2)> 40,000 USDT8.5% APY

Crypto-Backed Loans

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

Loans are offered at tiered interest rates based 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%.

  • Interest Rates
    • 50% LTV - 9.75%
    • 35% LTV - 7.9%
    • 20% LTV - 4.5% (available only for BTC-backed loans valued up to $20k USD)

New loans incur a 2% origination fee. There are no penalties for prepayment, and you'll receive your loan the same day you deposit your collateral.

How Does BlockFi Make Money?

So how can BlockFi afford to pay such generous rates on their interest accounts?

BlockFi makes money by borrowing money at one rate, and lending it out again at a higher one. Users deposit their crypto into BlockFi Interest Accounts, and BlockFi lends it out to institutional and corporate borrowers who in turn pay interest.

A portion of those payments goes to BlockFi, and a portion also goes to users whose deposits made the loans possible in the first place.

Some of the borrowers that BlockFi lends to include:

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

Some of the other ways BlockFi makes money include withdrawal fees, spreads charged for trading on their exchange, origination fees charged on their crypto-backed loans, crypto mining, sponsorship fees, and premiums on investments into other trusts.

BlockFi Pros and Cons

Review BlockFi's pros and cons before signing up for an account. Here's the general takeaway:

BlockFi Pros and Cons

  • No minimum deposits
  • No monthly fees
  • No trading fees
  • Earn up to 9.0% APY
  • No commissions
  • Based in + regulated by U.S.
  • Gemini as custodian
  • Slow withdrawal
  • APY is volatile
  • Not FDIC- or SIPC-insured
  • No investment guidance

Can I Trust BlockFi?

While there is inherent risk in lending your cryptocurrency, BlockFi appears to be making every effort to keep your money safe.

Their primary custodian, Gemini, is licensed by NYDFS (New York Department of Financial Services), and is known for valuing security and regulatory compliance over all else.

Gemini keeps 95% of their assets in cold storage, in air-gapped geographically distributed facilities.

When it comes to their Interest Accounts, BlockFi's institutional borrowers are held to the same over-collateralized standards as borrowers using their crypto-backed loans.

They employ an automated risk management system that always monitors open positions in case of sudden shifts in the market, with the ability to terminate a loan at short notice.

In order to ensure reliable withdrawals from client Interest Accounts, BlockFi also manages reserve balances.

Can you lose money on BlockFi?
Yes. Despite everything BlockFi does to ensure the safety of client funds, such as requiring over-collateralized loans and employing Gemini as their primary custodian, it is possible to lose money on BlockFi. As BlockFi says, "This is not a risk-free product, and loss of principal is possible."

Though BlockFi reported 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," the possibility of a large-scale default could, in theory, lead to a loss on behalf of users.

Bottom Line

In the same way that traditional banks provide borrowing and lending services for fiat money like the U.S. dollar, BlockFi provides financial services for crypto traders and investors.

They make their money and pay interest to holders of their BlockFi Interest Accounts by lending deposits out to institutional and corporate borrowers at higher rates than they received them for.

And though there is always risk involved with trading or lending cryptocurrency, you can be certain that BlockFi is doing everything in their power to ensure the safety of your cash and your coins.

BlockFi

Get Up to $250 in Bonus BTC

DepositCrypto Bonus
$100 - $1,499$15
$1,500 - $19,999$20
$20,000 - $39,999$40
$40,000 - $74,999$75
$75,000 - $99,999$100
$100,000+$250

Coinbase

Earn $5 in bitcoin for getting started on Coinbase

Personalized $5 reward offer is displayed after account creation. Limited time offer and while supplies last. Offer available to new users who have not previously verified their identification. Offer not available to new users who were referred to Coinbase through the Referral Program or who have previously opened an account using different contact information. Coinbase may update the conditions for eligibility at any time, in its sole discretion. See Terms and Conditions.

Crypto.com

USD $10 Sign Up Bonus

You will need to stake in $1000 CRO to earn USD $10 worth of CRO. Only the first amount of CRO you stake is used to calculate the sign-up bonus.

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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