- Zac Prince is the CEO of BlockFi, a crypto firm that offers high interest rates on crypto deposits.
- In a recent interview, he explains the market dynamic that allows his firm to offer such high rates.
- He also shares retail product plans after launching a 1.5% to 3.5% bitcoin rewards credit card.
- See more stories on Insider’s business page.
For those who look hard enough, there is still money to be made.
BlockFi, a crypto-finance firm that offers lending, borrowing, trading, and other payment services, pays investors up to 7.5% in interest rates for depositing their cryptocurrency into its interest accounts. For example, depositors of bitcoin and ether can earn a 4% annual percentage yield while those who park their litecoin and chainlink with the firm can earn 4.5% and 3% APY, respectively. (Interest for BlcokFi accounts accrues daily and interest payments are made monthly).
However, it is stablecoins that earn the most interest. USDC coin, Gemini dollar, Pax Standard, Tether, Binance USD, and Dai depositors can earn anywhere between 5% to 8.5% APY on the BlockFi platform.
“We are increasingly seeing folks not only use our platform to earn interest on cryptocurrencies but also to earn interest on stablecoins, which I think of as just digital dollars. They’re one-to-one interchangeable with dollars in a bank account on our platform,” Zac Prince, founder and chief executive of BlockFi, said in a Tuesday SALT Talks interview with SkyBridge founder Anthony Scaramucci.
What makes the high rates possible?
While BlockFi has recently cut rates on several crypto asset deposits due to “changing market conditions,” they are still attractive compared to the traditional high-yield savings account, which has seen rates drop to as low as 0.4%.
What’s made such high yields possible on BlockFi is that the firm is able to charge high rates when it lends out the capital that clients are holding on its platform, according to Prince.
“The reason we’re able to do that is that the cryptocurrency sector is not connected to the traditional financial system particularly well right now,” he said. “The implication of that is that cryptocurrency companies, cryptocurrency trading firms, they’re not accessing the traditional debt and credit markets from banks, therefore they have a higher cost of capital, which they’re accessing through firms like BlockFi.”
High rewards usually come with high risks. Prince said the firm reduced potential risks by over-collateralizing the majority of its lending with liquid assets. However, one glaring risk is that the deposits are not insured by the Federal Deposit Insurance Corporation. To that, he added that the firm, which uses Fidelity Digital Assets, Gemini, and BitGo as custodians, has “never lost a penny across any of the lending that we do.”
A bitcoin rewards credit card that pays 3.5%
Despite bitcoin’s recent wild price gyrations, BlockFi’s business has done exceedingly well.
The firm, which has $15 billion in total assets and $10 billion in outstanding loans, is in talks to raise several hundred million dollars at about a $5 billion valuation. The current round is being led by Daniel Loeb’s New York hedge fund Third Point and London-based venture firm Hedosophia.
“Despite the day-to-day price fluctuations of cryptocurrencies, this sector is in a long-term secular growth trend,” Prince said. “There are new people coming in all the time, there are new business opportunities all the time.”
He adds that the four-year-old startup still has a lot of room to grow. For example, while Coinbase has 55 million retail accounts, BlockFi has about 450,000 retail accounts.
Just this week, the firm rolled out its hotly anticipated bitcoin rewards credit card. With about 400,000 people on the waitlist, the card, which has no annual fee, pays 1.5% back in bitcoin for every purchase made and 3.5% for the first 90 days. Once redeemed, these rewards are transferred to the cardholder’s interest account where they can continue to earn interest.
And Prince has the ambition to do much more.
In five years, he expects that BlockFi will be “very active on the retail side” of its platform. He added that there are plans to launch a debit card, peer-to-peer payment functionality, and more on-and-off ramps that enable clients to move funds between their traditional bank accounts and blockchain platforms more easily.
He also anticipates that bitcoin will be trading at between $200,000 and $300,000 by then.
“Ultimately, the impact that I expect will have there and that the entire industry will have there is that financial services are going to be better, faster, cheaper, and more accessible for global consumers,” he said.
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