- How does Blockfi make money when so much of their service is free?
- Get the lowdown on the business model of Blockfi.
- Review Blockfi’s competitors and how they plan to expand in the future.
Founded by Zac Prince and Flori Marquez in 2017, Blockfi is a financial services company that facilitates buying, selling, and investing of cryptocurrencies.
With Blockfi, you don’t have to worry about paying extortionate transaction fees. The platform manages over $10 in assets from one million verified clients and 350 global institutions.
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What does Blockfi do?
Blockfi is a bank-like platform that caters to both institutional investors and ordinary investors. It offers a wide range of financial services including commission-free crypto trading, interest-bearing accounts, and low-interest-rate loans. It allows you to buy, sell, spend, and earn interest on cryptocurrency with no hidden charges.
Blockfi is primarily used as a cryptocurrency bank. You can use Blockfi for cryptocurrency in the same way that you would use a traditional bank for US dollars. By opening a BlockFi Interest Account (BIA), you can deposit cryptocurrency into the platform, earn interest on it, and then withdraw it at any time you want. The platform offers both crypto exchanges and crypto accounts.
How does Blockfi work?
While Blockfi offers many financial services, it primarily acts as a lending company that gives customers access to their crypto balances. Blockfi lends the money of customers to other crypto companies with low interest rates. Some percentage of that interest is returned to the customer. If you lend you crypto coins through this platform, you can earn up to 8.6% annual percentage yield (APY) on your crypto reserves.
In addition to lending, you can also use Blockfi to trade different types of cryptocurrencies, including bitcoin, litecoin, and ethereum. You can also trade USD coins on the platform. The platform is available as both a website and mobile app.
Doing your research on BlockFi?
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Highlights
- Get $5 in Bitcoin after your first trade on Coinbase.
- Buy and sell popular digital currencies, keep track of them in the one place.
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- Maintains crypto-insurance and all USD cash balances are covered by FDIC insurance, up to a maximum of $250,000.
Pros
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How does Blockfi make money?
Blockfi makes money by charging a small fee on all of its offerings. The platform generates revenue from disbursements, interest, withdrawal fees, crypto mining, trading spreads, investment premiums, and sponsorship fees.
Technically, Blockfi does not charge any transaction fees. However, the platform charges a 1% margin while setting trade prices. Similarly, it also charges a small fee when you withdraw money from your account. However, the platform allows one free stablecoin and cryptocurrency withdrawal per month. Here’s how the platform generates revenue:
Interest Fees
A massive part of Blockfi’s income comes from interest paid on loans. Customers use USD bonds to borrow money and insure their debts. Blockfi charges interest on loans which is higher than the rate paid by holders.
Mining
In May 2021, the company added another product to its revenue generation model. Blockfi has partnered with Blockstream for crypto mining. Blockstream is an established mining company that will provide Blockfi with the infrastructure required for cryptocurrency mining. The company’s mining facility in Georgia has installed Blockfi miners.
Traders and Investment Funds
Blockfi also generates revenue from crypto-monetary funds. These funds are designed to bridge the mispricing gaps between markets or exchanges.
Spread
Blockfi also makes money through the spread i.e. the difference between the buying and selling price. All crypto trades are routed according to the highest bidder. For example, if an order is placed simultaneously by two traders, it will be assigned to the buyer.
While the company offers commission-free crypto trading, there are some hidden charges. However, there is no percentage-based fee charged on each transaction.
Investing
Some part of Blockfi’s revenue comes from investments. Due to extensive capitalization and growth, the company has partnered with several other firms. Blockfi’s biggest wager is on the Grayscale Bitcoin Trust (GBTC). According to the Security & Exchange Commission, the company acquired 36.1 million shares which is equivalent to 5.66% of ownership stake.
Future Growth Engine
Blockfi has established itself as an all-in-one financial services firm. With a large number of financial services, the company has gained a foothold in the FinTech market.
Since its founding, Blockfi has collaborated and partnered with a multitude of firms worldwide. With over $1.5 billion in assets, the company plans to strengthen its foothold in the market by introducing new services. Its future growth engine is based on innovating its product portfolio, funding new acquisitions, and penetrating other sectors of the financial market.
Competitors
BlockFi faces stiff competition of from cryptocurrency exchanges, crypto banking platforms, and crypto wallets including Crypto.com, Coinbase, Binance US, YouHodler, FTX US, Nexo, CakeDefi, and Gemini.
