Cryptocurrency lending firm BlockFi has recently launched a cryptocurrency deposit account that offers its users over 6% a year in compound interest, as it lends cryptocurrencies to borrowers to generate revenue.
According to a recently published post, the company’s BlockFi Interest Account (BIA) is now live, and lets its users deposit either bitcoin or ether into it to earn an annual interest rate of 6%, paid monthly in crypto.
The monthly interest is compounded, to give users an annual 6.2% yield a year. Speaking to CoinDesk BlockFi’s director of marketing Brad Michelson stated:
It helps crypto investors grow their wealth with one of the most powerful tools in finance – compound interest.
According to the cryptocurrency lending firm, users are able to withdraw their funds at any time. The holdings of users’ accounts are custodied at the Gemini Trust company, co-founded by Cameron and Tyler Winklevoss, known as the Winklevoss twins, which is regulated by the New York Department of Financial Services.
It reportedly holds insurance coverage for cryptocurrencies in its custody. Michelson clarified that the product “doesn’t come with the backing of the federal government like a savings account at a bank does.” BlockFi is said to be able to offer the 6.2% annual yield thanks to its crypto loans to institutions, to which it charges more than it pays out to depositors.
“The launch of BIA is a significant step in BlockFi’s goal of becoming the go-to provider of financial services for crypto investors” said CEO @BlockFiZac “We’re excited to leverage our relationships to provide yield on digital assets for crypto investors” https://t.co/z0QuYHNnvJ pic.twitter.com/aSABu9gew7— BlockFi (@TheRealBlockFi) March 5, 2019
The move notably comes after a year in which crypto lending firms thrived throughout the bear market. BlockFi itself raised $52.5 million last year in a round led by Mike Novogratz’ Galaxy Digital, and $1.55 million in an earlier round. In December, it raised an additional $4 million.
Currently, the company reportedly has over $10 million in assets from retail and institutional investors. Other crypto lending platforms include Compound, an app that lets users deposit their crypto holdings to receive interest according to a dynamic interest rate.
Crypto Community’s Reaction
Initially, the cryptocurrency community’s reaction appears to be a positive one, with some pointing out that in traditional financial institutions no deposit account gives out a 6.2% annual yield – or comes close to it.
However, other crypto users have pointed out that there’s risk involved in cryptocurrencies, and even more risk involved in depositing funds to earn passive income through a third-party.
If you think crypto lending platforms enable you to become a risk-free creditor & collect interest on any size loan at several hundred basis points above the target federal funds rate in perpetuity, then I have a bridge to sell you.— Jake Chervinsky (@jchervinsky) March 5, 2019
While some appeared to be fine with the level of risk involved, others cautioned their peers the offering may be a bit too risky for a 6.2% annual yield.