The news follows the company’s agreement to shut down a yield-paying crypto product after it was deemed illegal by the SEC. According to protocol.com, the SEC and state regulators have kept a close eye on crypto lending products, and some state regulators concluded that they come with a substantial risk, which is why they should be regulated accordingly.
In the case of BlockFi, the company had to pay a USD 100 million fine for its BlockFi Interest Accounts product. As for this new product, it will initially become available to US accredited investors exclusively, but there are plans to open it up to all US customers at the start of 2023. Some of the product’s highlights include no minimum investment as well as support for 15 digital assets such as Bitcoin and Ether.
Earlier in 2022, BlockFi was directly affected by the downturn of the crypto market and had to lay off around 20% of its workforce in a decision that affected 170 employees. The company also struck a deal with crypto exchange FTX. As part of that deal, FTX provided BlockFi with a USD 400 million credit line and in return gained an option to buy BlockFi. According to protocol.com, the purchase price is subject to change according to some performance milestones, including the SEC approval of this new interest product, which would increase the price by USD 25 million.
According to Investopedia.com, crypto lending is the process of depositing cryptocurrency that is lent out to borrowers in return for regular interest payments. Payments are made in the form of cryptocurrency that is deposited typically and compounded on a daily, weekly, or monthly basis. Cryptocurrency lending platforms allow investors to borrow against deposited crypto assets and lend out crypto to earn interest in the form of crypto rewards.
There are two main components to crypto lending, namely deposits that earn interest and cryptocurrency loans. The deposit accounts have many things in common with bank accounts, as users deposit cryptocurrency and the lending platform pays interest. In contrast, crypto loans are typically offered as collateralized lending products. Investopedia warns that cryptocurrency lending is inherently risky for both borrowers and lenders because the loans and deposited funds are directly tied in with the crypto market, which is known for its volatility.
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