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Learning, Sharing, and Teaching => Investor Alley => Topic started by: billy on January 09, 2021, 05:27:51 PM

Title: blockfi?
Post by: billy on January 09, 2021, 05:27:51 PM
Wondering if anyone is using Blockfi? I don't enough about this crypto area outside it's very speculative,  there trying to paint crypto savings accounts are more stable and safe so to speak. Blockfi's idea is to reduce the risk if customer holds a stable coin with them, seems interesting.
Title: Re: blockfi?
Post by: Dgmp on January 10, 2021, 09:57:40 AM
I looked into it, and for now, have decided too risky to put my bitcoin there.

For stable coins...I would stay far far away from tether.

However, they are backed by pretty legitimate companies and partnered with fidelity to provide this service to fidelity companies, so it seems legit, but not risk less.
Title: Re: blockfi?
Post by: billy on January 10, 2021, 11:45:13 AM
So you don't like blockfi because you give up your cryptokeys?

USDC looks interesting only because of its market cap and backed by the dollar, I think if I put money into this account it must be turned into Gemini dollar which is owned by blockfi? Why do you need Gemini dollar in the first place? And from there I choose what crypto to hold it in, like USDC? Why does each crypto offer different APYs?  Blockfi's business model is they lend your crypro and borrower gives collateral 1.2X of the loan, so why would they need to borrow in the first place? Is this like P2P lending club kind of thing?
Title: Re: blockfi?
Post by: Dgmp on January 10, 2021, 04:55:16 PM
I am not sure of all the answers, but for the blockfi model here is what I took away from the hour I spent looking at this:

- People with a lot of cryptocurrency gains have a desire to get USD to pay for things without selling their crypto and incurring taxes.  Therefore they will take a bitcoin backed loan and take out dollars.  So yes, they may be giving 1.2 in collateral, but that collateral is highly volatile.  They are trusting their crypto will continue to grow faster than the interest they pay on doing this.

- Institutions short bitcoin need to be able to borrow the bitcoin to do so, and blockfi provides that means.  (Shorting, or short-selling, is when an investor borrows shares and immediately sells them)

- I think the stable coin loans are mostly for traders and liquidity who are using these coins to move in and out of crypto and across exchanges, or hedging shorts, etc. 

After reviewing the below ( and the above thoughts, I just decided that the fact I have crypto holdings is risky enough and can see how big enough volatility could cause problems that ripple through to blockfi users.  They aren't paying 6-8% interest because this is "safe".  The fact that bitcoin pays a lower interest rate then stable coins implies stable coin lending even more risky then bitcoin.


How Does BlockFi Make Money?
At its roots, BlockFi is a spread business that makes money by borrowing capital at a certain rate (the interest rates it pays to users) and lends it a higher rate (the interest rates it offers for BTC/ETH/GUSD loans).

A BlockFi blog post notes that the company primarily works with institutional counterparties to offer them liquidity. These borrowers consist of:

Traders and investment funds that seek arbitrage trading opportunities in a fragmented marketplace. They borrow cryptocurrency to close mispricing gaps between exchanges or dispersed markets. 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.
Other businesses that need an inventory of cryptocurrency to provide their clients with liquidity. This category includes businesses such as 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.
Title: Re: blockfi?
Post by: billy on January 10, 2021, 06:10:38 PM
Wow, talk about a rabbit whole, thanks for the info. I know people that own Cryptocurrency, but don't understand what an index fund is, which is just wild to me. My schedule is wide opened  for the time being getting over the rona, so I guess I can learn a little bit more about Cryptocurrency.