BlockFi Business Model | How Does BlockFi Make Money?

BlockFi is a cryptocurrency-centric banking platform. BlockFi lets you earn interest, spend cryptocurrency, and buy and sell cryptocurrency. You don’t have to worry about hidden fees or minimum balances with BlockFi.

Users are increasingly turning to BlockFi for use as a cryptocurrency bank. In the same way that you would use Bank of America or a Credit Union for your currency, you can use BlockFi for cryptocurrency.

BlockFi Business Model initially focused on its BlockFi Interest Account (BIA). With a BIA, cryptocurrency holders can deposit money into the platform, earn interest on it, and then withdraw it at any time. 

BlockFi pays users to borrow money, and the system generates a steady profit.

BlockFi has since increased its product and service offerings. For example, BlockFi offers both crypto accounts and crypto exchanges.

What is BlockFi?

BlockFi is a financial services company that provides retail and institutional investors with various and services such as loans and commission-free trading.

BlockFi earns revenue through interest fees, withdrawal fees, spreads, sponsorship fees, crypto mining, and fees earned on investments in other trusts.

The company was founded in 2017 and has grown to become one of the leading bitcoin exchanges. Capital raised by the company amounts to more than $508 million to date.

BlockFi appears to have a bright future. Soon, the company plans to introduce the world’s first bitcoin rewards credit card. BlockFi will credit your bitcoin account with 1.5 percent back on every transaction.

According to a January 29 article, BlockFi has officially registered the “BlockFi Bitcoin Trust” with the SEC, indicating that the company is working on new investment products.

We will take a closer look at how BlockFi operates – and how you can benefit from it. The company’s mission is to assist consumers in gaining more value from crypto.

How BlockFi Work?

BlockFi is a financial technology startup which allows customers to purchase and sell cryptocurrencies, and borrow and lend and spend money using the credit card.

One of BlockFi’s primary products is a lending company that provides consumers with access to their crypto-balances.

BlockFi lends the money to other crypto companies that pay interest on it – some of it is returned to the user. Crypto lenders can earn 8.6 percent APY (annual percentage yield) on their crypto holdings.

Customers can buy money from BlockFi (shaped like a coin). The amount of the borrowing depends on the assets the borrower currently owns on his BlockFi account.

Traders can also make use of the platform to trade cryptocurrencies. Bitcoin, Ethereum, Litecoin, and USD Coins are all available currencies and others like Tether.

Additionally, BlockFi currently has a partnership with Visa for the development of a credit card. Users can use the card to pay with their balance (crypto) and receive cashback rewards.

Institutional investors, as well as ordinary investors, can select from a variety of BlockFi products. These examples include spot trading, credit trading, crypto trading, or margin trading.

You can access BlockFi through its website or on its mobile app (available on Android and iOS).

How Does BlockFi Make Money?

The business model of BlockFi is to generate money by borrowing capital at a specific rate (the interest rate customers are paid) and lending it at a higher rate (the interest rate for Bitcoin, Ethereum, and GUSD loans offered). 

According to a BlockFi blog post, the company provides liquidity to institutional partners. 

BlockFi earns money from interest, disbursements, withdrawal fees, crypto mining, sponsorship fees, and other trusts’ investment premiums.

Here are more details about the revenue sources of BlockFi:

Traders and investment funds

The arbitrators of a fragmented market are traders and investment funds. The purpose of borrowing crypto-monetary funds is to close mispricing gaps between exchanges or markets. In addition, margin traders will borrow to encourage their trading strategies.

Interest Fees

A large portion of BlockFi’s income is derived from interest fees paid on loan and interest accounts issued by the company.

Users and institutions use USD bonds to borrow money while insuring their debts.

Borrowers can take up to 50 percent of the crypto assets’ value as collateral, and As a result, you can borrow money for as little as 4.5% APR.

Several factors affect the interest rate, including the amount of collateral and the length of the loan.

BlockFi subscribers can also open an exciting account. BlockFi users can earn up to 8.6 percent APY by lending money to the company.

BlockFi monetizes the cryptographic accounts by crediting them to other institutions. In addition, the loans are charged interest by BlockFi, which is much higher than the rate that the holders pay.

Last but not least, if a user wishes to withdraw money from BlockFi, BlockFi also pays withdrawal fees.

Bitcoin Trust

BlockFi established the Bitcoin Trust in February 2021. The company then established trusts in Ethereum and Litecoin.

BlockFi Management LLC, a wholly-owned BlockFi subsidiary, manages bitcoin assets on behalf of retail and institutional clients.

Shareholdings in the trust will be made available to accredited investors in their country of residence via private placements. BTC’s worth indicates what it owns and what it owes, minus expenditures or other obligations.

Fidelity Digital Assets Services shall customize the Bitcoin held under this trust using a corporate custody solution designed for institutional investors.

BlockFi Management LLC, the trust’s sponsor, charges a sponsor fee of 1,75 percent.

Spread

BlockFi announced the commission-free offering before its upcoming cryptocurrency trading product  (October 2020).

Despite the organization not charging a percentage-based fee like Binance or Coinbase, there are still hidden fees.

In other words, the spread is the difference between the price of the BUY and the price of the SELL.

An example of the difference between the two would be if you bought the value at 40.00 and the price was 39.25 at that time. (equivalent to 1.9 percent).

BlockFi enables the corporation to route all crypt trades according to the highest bidder, so all crypto trades are routed. Therefore, based on the preceding example, if two independent traders place an order simultaneously, the order should be assigned to the payer.

When its trading product is revealed, BlockFi has also said that it will sell aggregated and anonymous user information to other companies. These facts can help you make your own investment decisions.

Investing

BlockFi has also significantly engaged in other firms as the result of its extensive capitalization and rapid growth.

The firm’s most high-profile wager is on the Grayscale Bitcoin Trust (GBTC). According to SEC filings, BlockFi acquired 36.1 million shares (equivalent to a 5.66 percent ownership stake) in the trust in February 2021.

The value of those shares was $1.7 billion at the time of the filing. In addition, BlockFi announced its trust offering just days after the investment was announced (see above).

In order to determine the value of trust shares, BlockFi compares each one with bitcoin held by the trust.

BlockFi is generating cash from the trade of cryptos it holds for its consumers. However, because of the trust’s six-month lockup period, the investment may involve significant risk if BlockFi needs liquidity.

Mining

Blockstream and BlockFi announced jointly in May 2021 that they would begin mining bitcoins.

The Blockstream cryptocurrency mining facility in Georgia, United States of America, has been installed with BlockFi miners. 

As a result, the firm will seek to diversify revenues and grow its services by adding bitcoin to its balance sheet, which will create access to over 300MW of electricity capacity.

The history of mining has been marked by multiple obstacles, such as expensive capital expenses (to purchase hardware), mining rig optimization, and energy procurement. 

Blockstream, as an established mining company, can provide the necessary infrastructure,  minimizing risks for its partners.

BlockFi earns money by mining bitcoins and accumulating bitcoins. As a reward, it may share bitcoins generated with Blockstream, depending on the terms of the agreement.

Quick Summary of BlockFi Business Model

BlockFi, which was founded in 2017, is a leading private company based in New Jersey. 

The BlockFi Interest Account is one of the few bitcoin storage solutions that offer competitive rates with those offered by most non-crypto currency accounts.

• Users of BlockFi can earn compound interest on cryptocurrencies such as BTC, ETH, LTC, USDC, USDT, GUSD, and PAXG.
• Bitcoin deposits are safe with it. BlockFi’s Bitcoin assets are held by the Gemini Trust Company, which is regulated by the New York Department of Financial Services.
• There is no restriction on its use outside of nations with sanctions or watch lists.
• Allows withdrawals anytime. There is a limitation on the number of free withdrawals a month, however.
• There is a simple and straightforward registration process with all the standard “Know Your Customer” information you’re used to submitting.

Those with a primary or moderate level of familiarity with digital assets may find BlockFi an excellent alternative. In addition, it only requires a basic understanding of Bitcoin since the site now accepts direct ACH deposits.

Compared to more traditional investment accounts, BlockFi’s rates beat those of Both Ally Bank’s high-earning saving accounts (0.2 percent) and WealthFront’s (1.82 percent). 

Despite this, it is important to note that BlockFi deposits are not FDIC-insured, so they should not be considered savings accounts. 

The account has its unique risks that are not present in traditional savings accounts with banks.

• The minimum deposit is $0
• Stablecoin Interest Rates: Up to 8.60 percent on USDC, USDT, and GUSD
• Interest rates on Bitcoin are 6% up to 1 BTC, 2% over 1 BTC up to 20 BTC, and 0.5 percent over 20 BTC.
• Ethereum Interest Rate: 5.25 percent on amounts up to 100 Ethereum, 2% on payments up to 1000 Ethereum, and 0.5 percent on payments over 1000 Ethereum.
• There is no monthly fee.
• Promotions & Referral Codes for BlockFi:  Receive up to $250 (starting at $25) in USDC Bonus When You Click And Fund A New BlockFi Account With At Least $500. Terms Apply.

In addition, BlockFi offers 50% loan-to-value loans guaranteed by your bitcoin.

In addition, it is updated regularly for the BlockFi Interest Account, not for the loan products, BlockFi credit card, or exchange.

Is BlockFi a safe Platform? How Secure Is BlockFi?

Our study and discussion suggest that BlockFi passes the safety test. Indeed, the system is about as safe as its primary guardian, Gemini. Gemini keeps 95% of its assets in cold storage and 5% in Aon-insured hot wallets.

Gemini is a licensed custodian regulated by the New York Department of Financial Services,  and it just achieved SOC2 compliance with Deloitte for its custody solution.

Despite BlockFi’s attractive interest rates, bitcoin enthusiasts have a right to be wary – we’re a nervous bunch after all. That is what this Blockfi review is all about!

How Can I Open a BlockFi Account?

You can create a BlockFi account in under two minutes. Follow the below process to open your BlockFi account.

•  You can begin immediately after reading this BlockFi review. But, first, visit BlockFi’s website to learn more. Then, sign up with this code to receive a $500 sign-up bonus on your first deposit.
• Navigate to the “Earn Interest” option in the homepage slider or the “Get Started” menu option.
• Enter your email address and password to create an account.
• Please enter the verification code that was sent to the email address associated with that account.
• After logging in, select “Deposit” to authenticate your identity and make your first deposit.
• Enter your data to verify your identity (part 1)
• Wait for the approval of a photo identification document, such as a passport, driver’s license, or identification card.

Success Story of BlockFi

Zac Prince (CEO) and Flori Marquez (SVP of Operations) launched BlockFi in New York City in 2017.

In the 1980s, Marquez’s parents moved from Argentina to Cornell. He studied economics at Cornell. In 2013, she earned a bachelor’s degree in finance and had worked in various finance roles.

Her employer was Bond Street, which provides small companies with loans. Goldman Sachs acquired bond Street’s employees in 2017.

The business itch of Marquez, however, made him pursue different intentions. Prince held various top roles in the world of finance when she met him a few months before.

Prince was a bitcoin enthusiast in addition to his professional achievements. His first Bitcoin purchase was in 2014, and in 2016 he began buying Ethereum. (one year after its creation).

To connect with like-minded individuals, Prince began attending local blockchain and cryptocurrency meetups.

A lightbulb moment occurred to him in 2017. The crypto surge pushed his holdings to previously unheard-of heights at the time. 

As a result, he asked for a bank loan to acquire an investment property, which was collateralized by his crypto assets. Sadly, the bank refused to recognize them as a legitimate asset class and even accused him of engaging in illegal behavior.

Prince and Martinez met shortly after Goldman offered her the highly lucrative job to discuss an idea he just had. BlockFi was founded as a result of those thoughts and meetings.

After months of hard work, BlockFi entered public beta in January 2018. A pioneer in offering bitcoin and ether-backed loans, BlockFi was among the first to provide such loans. 

BlockFi operated similarly to a bank, storing cash with a registered custodian and reporting loan performance to major credit bureaus.

The service was initially available in 35 states across the country. A few months after opening, the team raised their first round of venture capital, raising $1.55 million from several investors.

As one of the first cryptocurrency loan services, BlockFi grew at a breakneck pace in its early years. In July, the company raised $52.5 million in venture capital. 

As a result of the cash injection, they could expand their markets, raise the amount of money they lend, and develop new products.

Three months after obtaining $4 million in convertible notes from Coinbase Ventures, BlockFi began offering interest accounts in March 2019. 

After its debut, client assets grew by over $40 million to nearly $50  million—individuals from more than 50 nations registered for a BlockFi account.

By December, BlockFi had launched a zero-fee trading platform for cryptocurrencies. In addition, the company’s growth in product line allowed it to double its sales in 2019 more. 

Moreover, assets under management increased to more than $650 million (up from $50  million in March). 

The particularly noteworthy point is that most of the firm’s growth came from organic referrals, which refer to people recommending the service to their friends and family.

Despite continued growth through 2020, the company encountered a few hiccups. First, there was a data breach at BlockFi in May, which exposed sensitive customer information. 

To prevent further damage, the firm immediately disabled access. Additionally, it appointed Adam Healy as its first Chief Security Officer, a security professional with over  15 years of experience.

BlockFi increased its user base consistently despite the growing competition. Following a $50 million capital infusion, the firm reached a $400 million valuation by August. 

During the following months, the firm leveraged its moat around borrowing and lending to develop additional financial products, including an over-the-counter (OTC) trading desk, a  cryptocurrency trust, and even its own branded credit cards.

BlockFi’s expansion strategy was significantly influenced (and continues to be influenced) by financial services company SoFi, one of the firm’s first seed investors. BlockFi began with student loans and has since expanded to include mortgages, personal loans, and financial management tools.

Users are instilled with a sense of loyalty to a single primary product. In addition, this product allows businesses to collect a significant amount of data – in BlockFi’s case, this included credit scores and existing crypto holdings. 

This information was then used to create the company’s second product, an exciting account that informs subsequent products and services.

A booming cryptocurrency market, coupled with the continuous expansion, boosted the company’s value to $3 billion in March 2021.

Although the company grew, it had some growing problems, for example, ms. BlockFi delivered over 200 bitcoins (each worth about $60,000 at the time) to platform users by accident that same month. 

A malicious actor started flooding BlockFi’s sign-up pages with bogus accounts and offensive language the following month.

BlockFi employs about 1,000 individuals in offices in the United States,  Singapore, Poland, and the United Kingdom.

What is the Funding of BlockFi?

BlockFi has received $508.7 million in funding in total, valuing the startup at $3 billion. BlockFi’s revenue has doubled in the past year, putting it on track to grow sales by $100 million next year. 

With over $1.5 billion in assets under management and a loss record of zero percent across its lending portfolio, BlockFi has made an excellent case for establishing itself as a leading institution in the broader FinTech market.

BlockFi recently raised $350 million in a Series D round led by Bain Capital Ventures, Pomp Investments, Tiger Global, and DST  Global partners. 

According to a press release, BlockFi intends to use the money to innovate its product suite further, accelerate new market expansion, and fund new acquisitions.

BlockFi raised $50 million in a Series C round led by Morgan Creek Digital, with participation from Valar Ventures, Winklevoss Capital, Kenetic Capital, CMT Digital, Castle Island Ventures, SCB 10X, HashKey, Avon Ventures, Purple Arch Ventures, Michael Antonov, and NBA player Matthew Dellavedova, as well as two university endowments.

It previously raised $18.3 million in Series A funding with backing from Winklevoss Capital, Galaxy Digital, ConsenSys Ventures,  Akuna Capital, Avon Ventures, Susquehanna, CMT Digital, Morgan Creek, and PJC.

In the past, BlockFi has raised capital from SoFi and Purple Arch Ventures.

As a result of continuing product development and rapid growth, the company intends to raise additional funds in the future.

By March 2021, the platform had over 265,000 retail consumers and 200,000 institutional clients, generating $50 million in monthly income, up from $1.5 million in 2020.

Read, Stripe Business Model.

What is the Valuation of BlockFi?

BlockFi is now valued at $3 billion, following a $350 million Series D financing in March 2021.

Simultaneously, the corporation announced that it is now generating $50 million in monthly revenue, giving it a run rate of over $600 million.

Checkout, Gorillas Business Model.

Final Words: Is BlockFi Legit?

Based on our review of BlockFi (history, team, communication with support, and examination of the business model), we believe BlockFi is legitimate. Contrary to popular belief, the evidence is scanty. 

There are a few unfavorable reviews online from dissatisfied consumers. Still, these seem to be based on misunderstandings, such as expecting interest to be paid in USD rather than BTC, ETH, or GUSD.

BlockFi’s value depends on your risk tolerance and how you intend to use your bitcoin. However, BlockFi’s interest rates are highly competitive, and for some digital assets, they are even market-leading.

You might as well take advantage of compound interest if it’s just parked on an exchange. 

A year from now, 10 BTC would grow to 10.6+ BTC, a gain of about $36,000. But, of course, Bitcoin’s price fluctuation can also benefit or hurt you, so keep this in mind.

It’s worth noting that it becomes more vulnerable to theft if your Bitcoin leaves your hardware wallet. For example, bitcoins would be at risk if BlockFi or Gemini experienced a catastrophic hack (which is exceedingly unlikely).

Projects like BlockFi provide cryptocurrency investors with much-needed revenue diversity, which has been lacking for years for die-hard holders.

Also read, How Does Grammarly Make Money?