As I continue to associate more BTC holdings into my BlockFi interest account(BIA) I decided to delve a little deeper into how they negate some of the risk in their business model. For those new to the BlockFi platform the primary business model is offering BlockFi interest accounts (BIA) for different cryptocurrency coins such as Bitcoin, Litecoin, Ethereum, USD Coin, and Gemini USD coin. Interest rates vary depending on the type of account and also the amount held therein. Intuitively as traditional banking has shown the greater volume of assets you have in your account the higher the interest rate offered would be; however, BlockFi negates some of their risk by offering lower interest rates when you reach a certain threshold in your account. Currently +10BTC and +1000ETH will shift the respective accounts into the 2nd tier of the interest rate payouts. This shift in interest rates ensures they aren't overburdened paying interest at the end of the month to large account bases while the market simultaneously experiences any kind of downshift.
The next negation of risk is focused on their U.S. dollar loans lending platforms. This type of product serves as a way for BlockFi clients to leverage their cryptocurrency holdings. Your holdings are held as collateral in a unique secure wallet while the loans provide positive cash flow for BlockFi generated by interest payments. Some requirements in order to meet eligibility for the U.S. Dollar loan is $10,000+ USD value held in cryptocurrency and you require a loan of at least $5,000. Loan rates are as low as 4.5% plus the 2% origination fee associated with any BlockFi loan. This intake of fiat cash flow via interest payments in one of the solutions needed to incorporate cryptocurrency directly into the fiat markets around the world. I see this as a great benefit to BlockFi longevity and the cryptocurrency market as a whole. One way these funds will spent is on the purchase of coins from the market to pay out interest on the clients (BIA) accounts. As a loan holder you would essentially be helping to fund your own returns while taking advantage of whichever opportunity may have presented itself. I wont discuss all of the loan options in this post, howbeit interestingly enough they do offer home renovation, and first time home buyer loans to qualified individuals.
BlockFi offer institutional cryptocurrency loans in Bitcoin and Ethereum arranged via one on one contact between the company and the interested party, having said that they are not currently available to individuals at this time. Institutions interested in more information should know they must have a business model that incorporates fiat income and not exclusively a cryptocurrency based business model.
The next risk averse aspect I consider to be the biggest factor contributing to my continued and further involvement as a client with BlockFi is they do not hold the title of bank, therefore they do not participate in fractional reserve lending with your holdings. This is a topic I won't explain in detail that currently occurs in the fiat markets; however, maturity and lack of callbacks is one aspect I am happy to leave behind while making the leap to a more decentralized cryptocurrency financial system.
One thing to note is that BlockFi do not hold any of the coin keys themselves. While this may be an increased risk they mitigate some of that by using Gemini Exchange as licensed custodians of all BlockFi held coins and Gemini themselves use approximately 95% cold storage wallets while keeping 5% in hot wallets. In the worst case scenario and BlockFi had to close their doors tomorrow, clients are at the top of the list to be paid back all their crypto before any creditors.
I hope this brief discussion of how BlockFi manages some of their financial risks while offering BlockFi Interest Accounts (BIA) makes you feel a little more safe and secure in knowing that your coins are working for you safely while you HODL.
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