The crypto lending platform BlockFi is going live with their interest accounts for Bitcoin and Ethereum. BTC or ETH loaned BlockFi will generate a 6.2% APR, with the collateral being custodied by the Wikelvoss owned and NY-State regulated Gemini exchange. The BlockFi interest account is available worldwide and interest is paid in crypto.
This offer looks to be a great example for the innovative products available for crypto-assets. It’s a very much needed first-step towards making crypto the new normal. While interest is only available for a minimum collateral of 1 BTC or 25 ETH an interest paying saving account is what will drive adoption in the real world. While bank accounts in Germany charge negative interest for savings great than, savers around the world are looking for opportunities to lock their cash and secure against central bank inflation targets of 2-5%.
While BlockFi delivers a seemingly great product there are many questions left regarding the security of the collateral. BlockFi after all is a start-up operating in a high risk market (crypto & lending). It has yet to be made clear, what happens to the collateral if BlockFi’s loan business goes bad or the volatility of Bitcoin outmatches BlockFi’s risk management systems and the collateral is used for a margin call. Lastly, as Gemini is the custodian of the Bitcoin you’re exposed to the exchange risk, where a hack of Gemini will leave you without your private keys but empty wallets.
Having said that the risk are not entirely clear yet, I applaud BlockFi for bringing interest bearing crypto accounts to market. Whether or not they deserve the name of savings accounts is a question to be explored. Invest wisely!