BlockFi Thoughts
A question came up about BlockFi in one of the group chats, and so I wanted to post my answer, as a BlockFi user.

Blockfi is an interest bearing account for crypto that pays you 6% compounding interest for Bitcoin that you deposit with them.

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I have been using Blockfi since April 2020 and I've been happy with them.

Do they pay you 6% interest in dollars or Bitcoin?
  • They pay you interest in Bitcoin

How are they able to pay 6% interest?
  • Blockfi accepts your Bitcoin and then lends it out to other people, just like how banks operate. They then pay you the interest (while taking a small spread for themselves)

Isn't 6% super high?
  • The reason the interest is so high is mostly because the people they are lending to are either borrowing for a very short time frame, or their business operations more than cover the costs of borrowing your crypto and the nature of their business requires them to store an inventory of cryptocurrency to provide their clients with liquidity.

What are some examples of who Blockfi lends to?
  • Traders and investment funds that are arbitrage trading will borrow cryptocurrency to close mispricing gaps between different exchanges.
  • Margin traders will borrow to fuel their trading strategies.
  • Over the counter (OTC) market makers that connect buyers and sellers that prefer not to transact over public exchanges, often at a steep mark-up. These parties need to keep cryptocurrency inventory on-hand to meet demand. Since owning the cryptocurrency is very capital intensive and bears the risks of price volatility, OTC market makers will borrow from lenders such as BlockFi to facilitate their needs.
  • Cryptocurrency ATMs that keep the majority of their cryptocurrency assets in cold storage and need some level of liquidity to function on a daily basis.

What are the risks of using BlockFi?
  • Just like using a bank, using BlockFi presents you with counter-party risk. That basically just means that you are trusting BlockFi to not become insolvent, not do anything shady, not loose your Bitcoin keys, and not get hacked.

How risky is this compared to using a bank?
  • BlockFi, or rather its custodian, Gemini, is not insured by the FDIC or SIPC, but Gemini is insured by Aon and Nakamoto
  • Gemini is also a licensed custodian and regulated by the NYDFS, and it recently received SOC2 compliance from Deloitte for their custody solution.

Has BlockFi ever been hacked?
  • Since inception, BlockFi has not lost any customer funds HOWEVER, back in May they did have an incident where customer data was accessed. BlockFi had an employee whose SIM card in their phone was ported to a different phone and the attacker got access to a database of personal information on BlockFi users. My personal name, address, and how much Bitcoin I had on BlockFi was potentially something hackers might have seen.
  • No funds were lost because BlockFi uses Gemni- a custodial service backed by the Winklevoss twins that holds assets in cold storage and has multi-signature protections. But-- the hack was still a good example of how much trust you are putting in another institution to be a good custodian of both your data and your funds.

One of the core tenants of Bitcoin is to be able to be sovereign with your wealth, so its a tad antithetical to then take your wealth and give it right back to a third party you have to trust.

If you are going to use a service like BlockFi (and therefore by extension, their custodian, Gemini), you have to go in with eyes wide open that you are trusting them.

I have chosen to take that risk, but it's a very personal decision to each and every individual.

My general advice is to store most of your Bitcoin in cold storage and to be happy with whatever price appreciation comes of the asset directly. And then for a portion of your portfolio you feel comfortable having in hot storage (aka anything you have on exchanges now), move to BlockFi and get that 6% interest.

I view BlockFi as being about as safe as an exchange like Coinbase. Which is to say good, but not worth betting the majority of your holdings on.

Now that I've sufficiently scared everyone- if you happen to be interested in trying it out, here is a referral code, which I believe will give you $10 of free Bitcoin once you've deposited $100:

Nathan Worden's avatar
Also, if you're interested in joining the Crypto group on Commonstock, here is the invite link:

grantmagdanz.eth 🦇🔊's avatar
Super helpful. Thanks Nathan.
Nathan Worden's avatar
Happy to help!
Colin's avatar
I use BlockFi as well. The 8.6% yield you get on USDC is a great low risk way to park your money and get interest.
Nathan Worden's avatar
Yes, especially if you compare that to other online savings accounts like Marcus (by Goldman Sachs), that one only pays 0.50%

And then if you compare THAT to the national average APY of 0.05%, it's easy to see why 8.6% yield for USDC on BlockFi is getting some attention. (or SHOULD be getting more attention)
This is a helpful overview. One small note -- I believe you can choose to have interest paid out in any currency they support
Nathan Worden's avatar
Yes, you are correct, they call it "Interest Payment Flex" and allows you to choose to have your interest paid out in one of the other offered currencies.

For more details, see here:
Rachel Wolitzky's avatar
It doesn't work in NY! Only state that doesn't allow it. Makes me so mad
Nathan Worden's avatar
Ah dang! That is such a bummer!
Rachel Wolitzky's avatar
otherwise great post :)
Johnny K's avatar
Been using BlockFi for a few months now and really liking it, came across it on the Animal Spirits podcast. Found it very informative. Link below:

Nathan Worden's avatar
Thanks for sharing!