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BlockFi faces backlash over custom interest rates after pocketing $35 million in crypto-deposits

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BlockFi faces backlash over custom interest rates despite pocketing $35 million in crypto-deposits
Source: Pixabay

On 4 March, the cryptocurrency lending platform, BlockFi, launched the world’s first cryptocurrency-based savings account. It saw a massive $35 million in deposits, with the average balance ranging around $40,000. This is an indication of the cryptocurrency industry slowly edging towards more mainstream crypto-products around interest-bearing loans.

BlockFi set the cryptoverse abuzz after announcing a 6.2 percent annual interest rate for their savings account. The account presently accepts the top two cryptocurrencies, Bitcoin [BTC] and Ethereum [ETH], with an initial deposit quantity of 25.

However, BlockFi later clarified that the rate was changed on a monthly basis, based on a combination of rates the company sees in the institutional crypto-borrowing market, and the cost of customer acquisitions, Zac Prince, BlockFi’s Chief executive, said.

The fine print in the terms statement of the savings accounts, further points to a flexible interest rate. Despite touting a 6.2 percent annual interest rate, the terms read,

“We will determine the interest rate for each month in our sole discretion, and you acknowledge that such rate may not be equivalent to the benchmark interest rates observed in the market for bank deposit accounts.”

BlockFi faced severe backlash following the misleading advertisement, and buzz around their accounts. Several cryptocurrency proponents stated that the company will not give out a 6.2 percent rate, especially in such a volatile cryptocurrency market.

Prince tried to ease the concerns of the disgruntled community, stating,

“We expect the interest rate in the account to be higher in times when prices are falling, and lower when prices are rising because demand to borrow Bitcoin is partially driven by market sentiment.”

He also stated that the company was expecting a bull-run in the long-term, which will lead to lower interest rates being offered by BlockFi.

BlockFi did not try to suppress opposition arguments against their products and has, in fact, attested that the interest rate will “definitely” change with the market.

Prince added,

“We didn’t launch with a 6 percent rate with the intention of changing it one month later and pulling a big gotcha on everybody. That would be really bad business.”

Like any other depository system, the funds deposited with the platform will be lent out, within the crypto-space itself. BlockFi lends out the cryptocurrency funds to traders for arbitrage, short-selling or market making purposes at a whopping 12 percent. The lending platform’s assets are backed by the Winklevoss twins’ Gemini Trust Company LLC, which is under the regulatory oversight of the New York Department of Financial Services.



BlockFi maintained that the risk offered by the savings account was no more than the overarching volatile cryptocurrency market. Prince quantified this as a “systematic risk,” in tying it to the function of the Bitcoin blockchain, and its influence on the price.

The lending platform is primarily backed by Mike Novogratz’s Galaxy Digital Investments. The crypto-bull’s venture capital firm led a $52.5 million fundraising round for BlockFi back in July 2018. Other backers of BlockFi include Susquehanna, Morgan Creek Digital, ConsenSys Ventures, SoFi, Fidelity, Coinbase Ventures and Akuna Capital, among others.





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Altcoins

Bitcoin SV [BSV] gets hit with another reorg as multiple blocks get orphaned, including a 128 MB block

Akash Anand

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Bitcoin SV [BSV] gets hit with another reorg as multiple blocks get orphaned, including a 128 MB block
Source: Pixabay

Bitcoin SV [BSV] and its proponents have been making headlines over the past couple of weeks, either due to developments or because of comments made by its major proponents, Craig Wright, the chief scientist at nChain, and Calvin Ayre.

The network was also hit with several members of the cryptocurrency community alleging that the cryptocurrency itself is a sham without any use cases, as evidenced by its delisting on several popular cryptocurrency exchanges like Binance, Kraken and Shapeshift.

The latest news added salt to BSV’s wounds after it was revealed that the network went through another blockchain reorganization on a 128 MB block. This fact was pointed out by Nikita Zhavoronkov, the lead developer of Blockchair, who had tweeted:

“Whoops! $BSV has experienced yet another reorg, this time 6 (six!) consecutive blocks were orphaned (#578640–578645), this chain included a 128 MB block #578644 🤦‍♂️ The network was basically stuck for 1.5 hours, and this shows that even 6 confirmations are not enough.”

Orphaned blocks are valid blocks which are not part of the main chain. There are ways that they can occur naturally when two miners produce blocks at similar times or they can be a result of an attacker with enough hashing power using it for nefarious activities like reversing transactions.

A major reason why this reorg event made news was that a major 128 MB block was stuck in transaction, something that was not supposed to occur according to the initial claims made by the SV camp. Supporters of the cryptocurrency, however, have stated that despite being slower than promised, the transactions on the block settled faster than that on a Bitcoin Core block.



One supporter of BSV, mboyd1, tweeted:

“Orphaned blocks are a feature, not a bug”

To this tweet, Zyo, another cryptocurrency enthusiast replied:

“yes, but orphaning 6 blocks in a row is not good, that means that 6 confirmations is not safe. It’s a bug because the 100+ MB take way too long to propagate and validate. There is a reason why BCH doesn’t have [yet] 100+ MB blocks.”





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