BlockFi confirms it holds 50% of client funds in short-term positions with 10% in collateral

BlockFi seems to be in control of damage management as it sent an email to users on Wednesday night for investors who are “seeking peace of mind in this cryptocurrency bear market.” Email confirmed that risk management remains a top priority while BlockFi is navigating market volatility.

Battle-tested leadership

Interestingly, the company, which has just received a $ 400 million credit facility from FTX and has just added the option to fully purchase BlockFi for $ 240 million, has “tested the battle in all kinds of market conditions. I wrote. BlockFi’s ability to mediate transactions without affecting the customer’s funds or stopping withdrawals to support these claims. However, investors may feel uneasy because they need money in the first place.

In reality, after the collapse of Terra Luna, there was widespread transmission throughout the crypto market. A recent Nansen report also highlighted how bet Ethereum contributed to increasing pressure on all parts of the industry. Fallout from these events has hit BlockFi, and it may not really represent its general business practices and profitability.

An important area being discussed in the industry is proper risk management, which BlockFi asserts is “most important to our success.” The email claimed that the current FUD did not prevent the company from “navigating the period of volatility in this market.”

“Transparency builds trust”

The core “pillar” of BlockFi’s value is “transparency builds trust.” So far, crypto companies have outlined their operations over the last few weeks. Effective risk management, rising interest rates, profitability, credit agreements with FTX, and customer commitments were highlighted as key outcomes of BlockFi’s current process.

We have confirmed that “100% of retail customer withdrawal requests” is respected and that only 10% of customer funds are held as collateral. 50% are held in short-term positions and the rest can be long-term loans to third parties that generate yields.

Short positions are available for up to 7 days. In other words, if the run on assets exceeds 10%, the funds can be delayed by a week.But in the 2008 banking crisis, British banks Northern rock, The customer failed when trying to withdraw only 4% of that reserve. BlockFi collateral levels are now traditional in interest-bearing activities such as Fractional-Reserve Banks.In the United States, banks At least 10% In the UK, that number is always 12.5%..

Profitability

BlockFi impressively confirmed that it “maintained a positive net profit margin (NIM) for nine consecutive months.” This means that you have earned more interest than you have to pay your clients and have made a positive return on your investment. In addition, BlockFi had “plus cash flow in May 2022” and paid customers more than $ 10 million in interest in June.

The better news for BlockFi customers is that interest rates for “BTC, ETH, USDC, GUSD, PAX, BUSD, and USDT” customers have been raised. The company offers interest rates adjusted according to market conditions. In 2021, we offered 10% interest on stablecoins such as USDT. It fell to 7% due to the market downturn, but rose to 7.5% due to trading with FTX.

The company also revealed that it had never traded with Celsius and did not participate in “speculative bets” on the DeFi protocol.

The email ended with a quote from Zac Prince, CEO and founder of BlockFi.

“I’m convinced that at some point in the future (which could be 6 or 18 months), look back at some point in the next few months and say:” It was an amazing time to buy. And the reason it happens is that the long-term growth of this asset class is still going on. “