{"id":20281,"date":"2023-10-25T10:34:33","date_gmt":"2023-10-25T14:34:33","guid":{"rendered":"https:\/\/coincentral.com\/?p=20281"},"modified":"2023-10-27T13:24:55","modified_gmt":"2023-10-27T17:24:55","slug":"blockfi-review","status":"publish","type":"post","link":"https:\/\/coincentral.com\/blockfi-review\/","title":{"rendered":"BlockFi Review: Where Did Things Go Wrong?"},"content":{"rendered":"

BlockFi was a cryptocurrency-focused wealth generation platform that offered a suite of products, such as the BlockFi credit card, a BlockFi custodial wallet, and a cryptocurrency interest account.<\/span><\/p>\n

The company initially launched with a cryptocurrency interest account product, offering around 4.5% APY on BTC and up to 9.5% on stablecoins. They put this offering on ice in February 2022. Upon paying<\/span> $100 million in fines to the SEC<\/span><\/a> and 32 states, BlockFi ceased all BlockFi Interest Account offers to bring its business within the Investment Company Act of 1940.\u00a0<\/span><\/p>\n

As became clear after BlockFi declared bankruptcy in November 2022, BlockFi had\u00a0embroiled itself in a complicated interdependent financial relationship with now-bankrupt FTX earlier in the year. It was one of many cryptocurrency interest accounts<\/a> to declare bankrupcy.<\/span><\/p>\n

BlockFi: A Quick Company Bio<\/span><\/h2>\n

BlockFi<\/span> was a privately-held NYC-based lending platform founded in 2017.\u00a0 <\/span>BlockFi’s flagship product was the BlockFi Interest Account (BIA), which allowed users to earn compound interest on cryptocurrencies such as BTC, ETH, LTC, USDC, USDT, GUSD, and PAXG.\u00a0<\/span><\/p>\n

During the BIA\u2019s operation from 2017 to 2022, halted by the above-mentioned agreement with the SEC, BlockFi kept <\/span>cryptocurrency deposits secure <\/b>and consistently generated yield for its depositors, gradually dropping its rates in the process. It also launched a slew of new products, including the BlockFi credit card.\u00a0<\/span><\/p>\n

BlockFi garnered a reputation as one of the leading and most-trusted cryptocurrency interest accounts, particularly, popular among those keen on generating passive income. <\/span>\u00a0<\/span><\/p>\n

BlockFi deposits weren’t FDIC-insured. <\/b>These accounts weren\u2019t supposed to be considered savings accounts they were investment accounts with <\/span>a unique risks.<\/b><\/p>\n

Why Did BlockFi Go Bankrupt?<\/span><\/h2>\n

Although BlockFi paused all customer deposits into its interest-bearing account, it continued lending operations.<\/span><\/p>\n

In May 2022, BlockFi loaned $680 million to Alameda Research, FTX\u2019s affiliated hedge fund.\u00a0<\/span><\/p>\n

Following subsequent the cryptocurrency crash, one of BlockFi\u2019s largest borrowers, Three Arrows Capital, collapsed\u2013 3AC had taken a nearly $200 million loss in the Luna debacle.\u00a0<\/span><\/p>\n

BlockFi, in dire straits, managed to obtain a $400 credit facility from FTX in July 2022, which also included an option for FTX to purchase the company in the future for up to $240 million.\u00a0<\/span><\/p>\n

BlockFi soon found itself in a complicated incestuous relationship with being owed money by Alameda Research (FTX\u2019s affiliate hedge fund) and owing FTX $275 million from the July bailout.<\/span><\/p>\n

BlockFi was also using the FTX exchange to trade cryptocurrencies\u2013 and had $355 million of its crypto (i.e., user funds) locked up when FTX filed for bankruptcy in November 2022.\u00a0<\/span><\/p>\n

In November 2022, <\/span>BlockFi filed bankruptcy<\/span><\/a>, claiming it owes money to over <\/span>100,000 creditors<\/span><\/a>; it also sold a portion of its cryptocurrency assets, entering bankruptcy with $256.5 million cash on hand.\u00a0<\/span><\/p>\n

In addition to the over 100,000 users with funds locked in BlockFi, some of BlockFi\u2019s largest creditors include:<\/span><\/p>\n