My buddy the other day mentioned BlockFi to me. I had heard about it, but became more curious when he mentioned he was putting all his crypto in to it.
After doing research just from reading their website, it is absolutely beyond me how scams like this are allowed to operate. There are multiple funemental issues with their business model.
For example:
• They offer interest on crypto assets. 6% on bitcoin, about 8% on usdc, and 10% on tether. Which in and of itself it comical, interest generally is determined by risk & its funny that the highest interest is assigned to tether. Keep in mind usdc is also a stablecoin.
Earning interest on a traditional loan makes sense, they print more dollars everyday so eventually loans can be serviced. For something like bitcoin with a hard cap, where the F does the interest come from? What if a significant portion of buttcoiners had their assets “earning interest” where would the extra coin come from to add?
• In addition to the interest, where do they make money to provide this interest? Sure, they provide loans with a minimum 4.5% apr and maximum 10%. The minimum doesn’t even cover bitcoin’s interest. I highly doubt enough people are taking out loans to be able to service the amount of people risking their crypto for interest.
• Potential major liquidity issues. In the event of a “bank rush” where everyone requests their crypto at the same time. BlockFi generates revenue by loaning out the crypto you provide to institutions (what they do with it is beyond me). But if they’re not keeping full reserves then they’re set up for a major liquidity crisis in the event of a downturn & “bank rush”
This reminds me a lot of bitconnect. The rule of thumb, if it’s too good to be true, it probably is. 6-8% interest is ridiculous. I have a feeling we see these DeFi scams crumble with a lot of financial devastation.
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