On August 27, 2018, cryptocurrency-backed lending platform BlockFi announced it had received license approval in the state of California, marking the company's coverage across 44 US states. This expansion follows a $52.5 million funding round led by Michael Novogratz's Galaxy Digital in July 2018.
How BlockFi Works
BlockFi allows users to obtain USD loans by using Bitcoin (BTC) and Ethereum (ETH) as collateral. After applying, customers receive a decision and loan terms on the same day. They then deposit their crypto into a storage address, and BlockFi transfers USD to their bank account. Monthly payments can be made in either USD or cryptocurrency, and borrowers can retrieve their original collateral after fully repaying the loan.
BlockFi CEO Zac Prince explained: "We've found that a lot of crypto-asset investors are hesitant to use their crypto because of concerns with security and trust in the space — BlockFi and our institutional investors view these items as being mission critical to our success. We've built our platform with an institutional-quality approach from top to bottom — Our asset custody is done with Gemini, a US-based trust company and exchange with robust security practices and cold storage functionality. They also have a perfect track record with no hacks or customer fund losses. We also have a bankruptcy remote funding structure and 3rd party loan servicer in place to ensure that even if something were to happen to BlockFi, our customer and investors funds will be protected and the terms of loan agreements honored."
Significance of California Approval
Prince emphasized the company's focus on providing affordable debt products to the blockchain ecosystem. He believes this appeals to both individuals and corporations seeking liquidity without selling their cryptocurrency. BlockFi claims to offer the lowest digital asset-backed loan rates in the US market, with interest rates ranging from 10% to 13.5%. "We're the leading and most affordable option in the US market and plan to make our products as borderless as possible over time," Prince said.
The entry into California marks a significant compliance milestone for BlockFi. The company intends to expand its credit services to other global territories and plans to introduce additional products, such as credit cards. "We expect to have a major impact on the global availability of low-cost credit," Prince concluded.
Competitive Landscape
BlockFi joins a growing list of crypto-backed lending platforms including Salt Lending, Unchained Capital, Nexo, Coinloan, Othera, Ethlend, and Everex. In June 2018, Japan's Abic Corporation also launched a similar platform. As more players enter the space, competition in the crypto-backed lending market is expected to intensify.