BlockFi
BlockFi Inc. was a cryptocurrency financial services company founded in October 2017 by Zac Prince and Flori Marquez in Jersey City, New Jersey, specializing in lending and borrowing products backed by digital assets.[1] The platform enabled retail and institutional clients to deposit cryptocurrencies such as Bitcoin and Ether to earn interest through BlockFi Interest Accounts (BIAs), while using those assets as collateral for fiat or crypto loans, with BlockFi generating returns by lending deposits to institutional borrowers.[2] BlockFi experienced rapid growth in the burgeoning crypto sector, securing over $465 million in venture funding from investors including Bain Capital Ventures and Tiger Global, culminating in a $350 million Series D round that valued the firm at $3 billion in March 2021.[3] However, the company faced significant regulatory challenges; in February 2022, it agreed to a $100 million settlement with the U.S. Securities and Exchange Commission (SEC) and multiple states for offering unregistered securities via its BIAs, ceasing new account issuances as part of the resolution.[4] The firm's collapse was precipitated by the November 2022 downfall of FTX and its affiliate Alameda Research, to which BlockFi had extended over $1.2 billion in unsecured loans, exacerbating liquidity strains amid broader crypto market volatility; this led to a Chapter 11 bankruptcy filing on November 28, 2022, in the U.S. Bankruptcy Court for the District of New Jersey.[5][6] BlockFi emerged from bankruptcy in October 2023 under a reorganization plan supervised by the court, initiating distributions to creditors and the wind-down of remaining operations.[7]
Founding and Early Development
Establishment in 2017
BlockFi was founded in October 2017 by Zac Prince and Flori Marquez, who sought to create a platform offering lending and credit services within the cryptocurrency market.[1] The company was incorporated as BlockFi Inc., a Delaware corporation, with its principal place of business established at 201 Montgomery Street in Jersey City, New Jersey.[2] Prince, who assumed the role of CEO, brought expertise from adtech companies that underwent acquisitions and from online lending operations.[8] [9] Marquez, serving as Chief Operating Officer, was motivated by her relatives' experiences in Argentina, where limited access to traditional finance highlighted opportunities for blockchain-based solutions serving unbanked or underserved communities.[10] From inception, BlockFi focused on enabling cryptocurrency holders to deposit assets for interest-bearing accounts and to borrow fiat or stablecoins against collateral, addressing liquidity needs in a nascent digital asset economy lacking conventional banking integration.[1]Initial Product Launch and Business Model
BlockFi launched its inaugural product in January 2018, offering U.S. dollar loans collateralized by cryptocurrencies such as Bitcoin and Ether.[1] This service enabled cryptocurrency holders to access fiat liquidity without liquidating their digital assets, addressing a key pain point in the nascent crypto market where traditional lenders were reluctant to accept volatile assets as collateral.[11] The loans featured conservative loan-to-value ratios to mitigate risk from crypto price fluctuations, with BlockFi retaining custody of the collateral during the loan term.[12] The platform's initial focus targeted retail and institutional crypto holders seeking short-term capital for purposes like tax payments or opportunistic investments, while avoiding taxable events from asset sales.[13] Interest rates on these loans were set competitively, often ranging from 4.5% to 9% annually depending on collateral type and market conditions, providing BlockFi with a primary revenue stream through lending spreads.[14] This product marked BlockFi's entry into crypto-backed lending, differentiating it from pure exchanges by emphasizing secured credit over spot trading.[1] At its core, BlockFi's early business model revolved around arbitrage in the crypto lending ecosystem: sourcing USD funding through seed capital and later institutional partnerships, then deploying it as loans against over-collateralized crypto holdings to earn interest income.[15] The firm profited from the differential between low-cost USD borrowing rates and the higher yields demanded for crypto-secured loans, while employing rigorous risk management including automated liquidation thresholds to handle collateral volatility.[16] This approach positioned BlockFi as a bridge between traditional finance and cryptocurrencies, capitalizing on underserved demand for liquidity in a market lacking mature banking infrastructure.Products and Services
BlockFi Interest Accounts (BIAs)
BlockFi Interest Accounts (BIAs), launched in 2019, enabled users to deposit eligible cryptocurrencies and earn variable interest rates paid in the same cryptocurrency, with interest accruing daily and compounding monthly.[17][18] Users transferred assets to BlockFi, which pooled them and deployed the funds to generate yields, primarily through overcollateralized loans to institutional counterparties, proprietary trading, market-making activities, and other permitted investments.[2] This mechanism exposed depositors to counterparty and market risks, as BlockFi retained sole discretion over asset management without guaranteeing principal repayment beyond the deposited crypto.[19] Supported assets included Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and stablecoins such as Gemini Dollar (GUSD), USD Coin (USDC), Tether (USDT), and Dai (DAI), with rates varying by asset and deposit size.[20] Interest rates were set monthly based on prevailing market conditions and BlockFi's generated yields, ranging from 0.1% to 9.5% APY as of November 2021; for instance, stablecoins often yielded 7.5% to 8.6% APY, BTC up to 6%, and ETH up to 5.25%.[21][22] Larger deposits, such as over 20 BTC, saw reduced rates, dropping to 0.25% APY by June 2021.[23] No minimum deposit was required, and accounts offered liquidity with same-day withdrawals for most assets, though processing could extend to five business days during high volume.[18]| Asset Type | Example APY Range (as of 2021) | Notes |
|---|---|---|
| Stablecoins (e.g., GUSD, USDC, USDT) | 7.5%–8.6% | Higher yields due to lower volatility; up to 8.75% reported in some periods.[24][25] |
| Bitcoin (BTC) | 0.25%–6% | Tiered downward for deposits >20 BTC.[23][22] |
| Ethereum (ETH) | Up to 5.25% | Subject to market-driven adjustments.[22] |
Crypto Lending and Borrowing
BlockFi offered crypto-backed loans enabling retail users to borrow U.S. dollars secured by digital assets such as Bitcoin and Ethereum, providing liquidity without triggering taxable sales of holdings.[27] Loans were overcollateralized, with a maximum loan-to-value (LTV) ratio of 50%, meaning borrowers could access up to half the market value of their deposited collateral.[28] Annual interest rates started at 4.5%, subject to variation based on collateral type and market conditions, and required no traditional credit checks.[29] The service launched in 2018, expanding globally by October of that year to serve clients beyond the U.S.[30] To fund these operations and generate yields, BlockFi Lending LLC extended cryptocurrency loans primarily to institutional and corporate borrowers, including traders and potentially miners needing assets for operations.[31] These loans often lacked full collateral backing, with only approximately 24% overcollateralized in 2019 and 16% in 2020, exposing the platform to default risks amid crypto market volatility.[2] BlockFi also borrowed crypto from high-net-worth individuals and institutions to support its lending activities, creating a cycle where retail collateral funded higher-yield institutional placements.[32] By mid-2022, BlockFi reported $1.8 billion in outstanding loans, with roughly $600 million uncollateralized, highlighting vulnerabilities that later contributed to financial strain.[33] The platform enforced collateral maintenance through automatic liquidation if LTV exceeded thresholds due to price drops, aiming to protect lenders but risking borrower losses in bear markets.[20] Institutional lending yields, derived from these arrangements, were marketed as underpinning competitive returns, though reliance on opaque counterparty credit assessments drew regulatory scrutiny for inadequate risk disclosure.[34] Borrowing terms typically spanned 12 months with prepayment options, positioning the service as a bridge between traditional finance and crypto holdings.[35]Trading Platform and Rewards Card
BlockFi offered a cryptocurrency trading platform that enabled users to buy, sell, and exchange digital assets on a commission-free basis.[28] The platform, initially launched in December 2019, supported real-time spot trading of major cryptocurrencies including Bitcoin, Ether, and Gemini Dollar, allowing seamless swaps between assets using existing account balances.[36] In June 2021, BlockFi introduced BlockFi Prime, a specialized institutional trading and financing suite targeted at high-net-worth individuals and organizations, featuring an intuitive user interface with a built-in exchange calculator, flexible API integration for programmatic and high-frequency trading, and customizable pricing models.[37][38] BlockFi Trading LLC, a subsidiary, handled these virtual currency trading services for both retail and institutional clients until the company's operational wind-down following its 2022 bankruptcy.[39] Complementing its trading services, BlockFi issued the BlockFi Rewards Visa Signature Credit Card in partnership with Visa, marking one of the first credit cards to offer rewards directly in cryptocurrency.[40] Cardholders earned an unlimited 1.5% back in Bitcoin—or alternative cryptocurrencies such as Ether or Litecoin upon selection—on all purchases, with rewards automatically deposited monthly into a linked BlockFi Interest Account.[41][42] The rewards rate increased to 2% on spending exceeding $30,000 annually, resetting each card anniversary, alongside boosted rates of up to 10% at select partner merchants like H&M and Finish Line.[43][44] The card carried no annual fee and provided standard Visa Signature benefits, but required applicants to maintain a BlockFi account for reward fulfillment; issuance paused amid regulatory actions and the 2022 bankruptcy.[45][46]Growth and Operations
Funding Rounds and Valuation
BlockFi secured its initial seed funding of $1.6 million in February 2018, led by ConSensys Ventures, to support early development of its cryptocurrency lending platform.[47] Subsequent rounds accelerated amid growing demand for crypto yield products, with the company raising a total of approximately $450 million in equity by early 2021 across seed through Series D stages.[48] The firm's valuation reached a peak of $3 billion following its Series D round in March 2021, reflecting investor optimism in the bull market for digital assets.[49] However, by June 2022, amid broader crypto market downturns and liquidity pressures, BlockFi completed a down round that reduced its valuation to $1 billion, signaling diminished investor confidence in the sector's stability.[50]| Round | Date | Amount Raised | Key Investors | Valuation |
|---|---|---|---|---|
| Seed | February 2018 | $1.6M | ConSensys Ventures | Not disclosed[47] |
| Series A | August 2019 | $18.3M | Valar Ventures (led), Galaxy Digital | Not disclosed[1] |
| Series B | February 2020 | $30M | Valar Ventures (led), ConsenSys | Not disclosed[51] |
| Series C | August 2020 | $50M | Tako Ventures (led), partners including CoinFund | Not disclosed[52] |
| Series D | March 2021 | $350M | Bain Capital Ventures, DST Global, Tiger Global (led) | $3B[48] |
| Down Round | June 2022 | Undisclosed | Undisclosed | $1B[50] |