BlockFi

» see blockfi.com as it lived, on the wayback machine

~ the last words ~

blockfi was a US product. it required a US bank account and a US tax id, and its geo-block kept out most of the world. that meant the crypto-yield-account category was something the rest of us read about in tech-press explainers rather than used. i was in that outside category. by 2017, when blockfi launched, i had a day job in computer engineering and was watching the crypto cycle from a safe distance. the appeal of handing my bitcoin to a startup in new jersey in exchange for 8% apy was somewhere between low and negative.

blockfi was founded in august 2017 by zac prince and flori marquez. the pitch was simple. a customer would deposit bitcoin or ether on the platform, blockfi would lend those coins out to institutional traders and market makers at higher rates, and the spread would return to the depositor as yield. the model worked on the same assumption every shadow-bank of the 2010s made, which was that the underlying collateral would not crash and the borrowers would not default. peak valuation hit $3 billion in march 2021 in a series d round led by bain capital ventures with tiger global also in. cumulative funding crossed $500 million.

the first hit landed in summer 2022 when three arrows capital, a singapore-based crypto hedge fund that had borrowed heavily from the entire crypto-lender industry, blew up. blockfi took about $80 million in losses on three arrows exposure. ftx stepped in with a $400 million credit facility and an option to acquire blockfi for up to $240 million. that lifeline held for four months. on november 11 2022, ftx itself filed for chapter 11. blockfi froze customer withdrawals on november 10, disclosed significant ftx exposure on november 14, and went into its own chapter 11 in new jersey on november 28 2022.

~ the record ~

~ what it was ~

blockfi was the most mainstream-looking of the 2021-era crypto lenders. it had a clean website with sub-second account-funding ui. a referral program paid in bitcoin and a credit card with 1.5% bitcoin cashback rounded out the consumer surface. tom brady appeared in marketing alongside the ftx stadium-naming deal. the entire visual identity worked hard to read as fintech rather than crypto-bro, and that worked. at peak blockfi reportedly had around 600,000 retail clients with roughly $10 billion in assets under custody.

the part that did not work was the underwriting. blockfi loans to institutional borrowers were largely undercollateralized or backed by other crypto, and the loan book was concentrated in a small number of counterparties. when three arrows defaulted, blockfi did not have the equity cushion to absorb the loss without outside help. that help came from ftx, which means blockfi survived three arrows only by tying its remaining solvency to another counterparty that was already insolvent and lying about it.

~ how it ended ~

the chapter 11 filing on november 28 2022 listed over 100,000 creditors and assets and liabilities each in the $1-10 billion range. the bankruptcy trustee took roughly a year to sort out claims. customers who had bitcoin in interest-bearing accounts received partial payouts in stablecoins or fiat, not the original coins. emerging from chapter 11 in october 2023, blockfi announced it would wind down rather than try to relaunch. the california department of financial protection revoked blockfi's lending license the same year, which removed the last regulatory path back to operation.

~ what replaced it ~

blockfi is one of the four crypto-lender deaths of 2022, beside celsius and voyager, with a later wave reaching genesis in 2023. each had a slightly different story but the same underlying shape: a deposit-yield product paid out of loan-spread revenue, with no deposit insurance and undisclosed counterparty concentration. the SEC settled with blockfi in february 2022 for $100 million over an unregistered-securities charge against the interest accounts, which was meant to be the warning. the warning did not stop blockfi from continuing operations, and it did not stop new customers from signing up. the actual end came from the counterparty network, not the regulator.

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