Risk Management is core to BlockFi’s DNA and central to achieving our mission: accelerate global prosperity through crypto-powered financial services. Since 2017 through June 2022, we’ve paid over $575 million of crypto interest to BlockFi clients worldwide while honoring 100% of client redemption and withdrawal requests per our terms.
This post provides market commentary for the crypto markets in Q2 2022 and introduces new features to Personalized Yield.
Response to crypto markets in Q2 2022
In Q2 2022, crypto markets were severely stressed, affecting prices, liquidity, credit quality, and leverage across the ecosystem. The coordinated stress in multiple segments of the market developed into a severe market selloff with unprecedented market volatility, generating losses to multiple firms that were not properly hedged against a more severe stress scenario.
Throughout this period, our risk management protocols have performed extremely well:
- All client redemptions and withdrawals have been honored per our terms
- All crypto interest payments have been made on time
- We continue to have no exposure to DeFi protocols
- We have no partnerships or direct exposure to Celsius or Voyager
Going forward, we’ve made changes to our risk appetite levels, portfolio and collateral mix, and bolstered loss-absorbing capital levels to make us even more resilient and able to withstand additional or prolonged severe market events. Specifically, we’ve updated our risk management program as follows:
- Balance sheet strengthening
- Increased risk capital: The $400 million FTX credit facility substantially increases our risk-absorbing capital on hand and amounts borrowed under this facility are subordinated to all of our clients’ accounts, including BIA and BPY accounts
- The credit facility helps us withstand long-tail events and navigate ongoing market volatility for a prolonged period of time
- Counterparty risk enhancements
- Reduced risk: We’ve reduced our overall credit risk appetite and have significantly reduced loans outstanding, unsecured exposure, and collateral concentrations within our credit portfolio
- Focused on quality: We’re primarily focused on lending opportunities with our most creditworthy borrowers. Going forward, we’ll restrict unsecured lending to our most established “Tier 1” institutional borrowers that have, among other things, large enough balance sheets to withstand ongoing market volatility
- Added collateral: Due to reduced credit risk appetite, we’ve increased collateral requirements for our “Tier 2” and “Tier 3” institutional borrowers and are working to fully collateralize any outstanding exposures to these counterparties
- Updates to collateral limits
- Limits on less-liquid collateral: We constantly evaluate appropriate collateral haircut ratios based on a variety of factors. At this time, we’ve reduced the range of collateral types that we accept.
Updates to Personalized Yield
We continually seek to drive innovation in the crypto lending markets. As always, we approach risk management as an opportunity to source the most attractive risk-reward opportunities for the benefit of our clients.
In traditional finance, there’s a mature market of certificates of deposit (CDs) spanning six months, one-year, and longer durations. Similarly, US Treasury products are available across three-month, six-month, 12-month, and longer durations. To date, there hasn’t been a similarly established market for term funding on cryptoassets. Yet on the institutional borrower side, we see attractive opportunities to lend to high-quality counterparties on varying periods of term.
To pass these attractive longer-term yields to clients while maintaining an appropriate level of duration-matching between our own assets and liabilities, we’re updating Personalized Yield for USD stablecoins and Bitcoin. Funds held under Personalized Yield are subject to certain benefits and restrictions compared to the BlockFi Interest Account, including but not limited to the following:
As of July 14, 2022:
For USD stablecoins (USDC, GUSD, BUSD, PAX)
For Bitcoin (BTC)
\ Note: Indicative rates at the time of this blog post. Rates updated daily and subject to individual negotiation.*** See terms
Specific pricing and terms for Personalized Yield can be negotiated with our team by inquiring here.
Taking traditional financial products and creating adaptations for crypto markets is what we do best. We are excited to introduce these new features to Personalized Yield as the type of innovation that pushes the entire industry forward by creating a longer duration lending market and connecting sources of capital with high quality institutional borrowers who put capital to work and generate attractive yields.
BlockFi Interest Accounts have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States, to U.S. persons, for the account or benefit of a U.S. person or in any jurisdiction in which such offer would be prohibited.
