Bitcoin decline: BlockFi on the verge of insolvency? The sweaty CeFi

BlockFi, the next giant to fall? – BlockFi is a platform of lending CeFi (centralized finance). This offers its users to generate a return on cryptocurrency deposits. However, faced with the general fall in the crypto markets, it could well be in a very bad position. It remains to be seen whether BlockFi will join the list of declining CeFi platforms, such as Celsius Where BabelFinance.

CeFi players in turmoil

The cryptocurrency market is at the heart of a bear market. Bitcoin, Ether and other cryptocurrencies record significant declines.

However, this bear market seems to be quite different from the previous ones. Indeed, the emergence of DeFi, then of CeFi, led to the creation of complex lever positions. Thus, many players in the ecosystem close to insolvencyseeing their leveraged positions come dangerously close to liquidation.

Recently, Celsius and BabelFinance have been obliged to block withdrawals on their CeFi platform due to lack of liquidity. Since then, these platforms have been trying somehow to avoid liquidations.

Unfortunately, this situation does not appear to be specific to these platforms. Indeed, it is now around BlockFi to find themselves in turmoil after the publication of confidential documents. Note that for the moment, the veracity of the documents, supposedly from a leak, could not be verified.

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BlockFi: the next CeFi platform to collapse?

On June 16, the Internet user @blane9171 has publishedon Twitter, 2 documents belonging to BlockFi, which would come from a leak.

One of the leaked BlockFi documents – Source: Twitter

Subsequently, the data in these documents was analyzed by numerous Internet users, including @otterooooowho dissected them in a twitter thread. Spoiler: it doesn’t smell very good!

“BlockFi’s income statement is really bad. It’s a jumble of negative numbers, let’s dig it together. »

Tweet by @otteroooo

First, this report shows that BlockFi has had a negative operating result over the past 2 years with:

  • $63.9 million in losses in 2020;
  • $221.5 million in losses in 2021.

Remember that in 2020 the price of bitcoin started at $6,000 and reached an all-time high of $69,000 in the year 2021. So how did BlockFi manage to be so unprofitable in a bull market? »

Tweet by @otteroooo

Another point is, meanwhile, cold in the back. Indeed, according to information compiled by @otteroooo, BlockFi has $467 million in its wallets, against 13.5 billion dollars normally deposited in its services of lending.

“Does this mean that at the end of 2021, BlockFi only had 3.4% of its funds in its wallet, with the rest loaned or invested? »

Tweet by @otteroooo

What is the problem? As @otteroooo points out, if we assume that all users have deposited the same amount, it means that if 1,000 customers wish to withdraw, only 34 will be able to access the funds. The rest will face a lack of cash from BlockFi.

For nowyouBlockFi only announced no suspension of withdrawalsas some of these competitors have been able to do.

Distribution of returns to investors: where do the funds come from?

Unfortunately, the bad news keeps coming. Also according to the same leaked report, BlockFi allegedly distributed a total of $400 million return to its users in 2021.

However, over that same period, their lending revenue was only $313 million. It makes a $87 million hole distributed to users without really understanding where they come from, as they don’t come from lending.

In 2020, the hole represented $14 million.

“I don’t know if this is the result of an (un)strategic decision to make massive losses year after year for market share (20% certain), or if the business model of CeFi loans is simply a fail (65% certainty), or if BlockFi is downright incompetent in basic math (comments reserved). »

Tweet by @otteroooo

Whether these revelations are true or not, Iit is safer to move away from CeFi platforms waiting for the storm to pass. Indeed, BlockFi could well be the next CeFi service to face insolvency risks.

In parallel, BlockFi continues to be in the sights of US regulators. The platform had to pay a $100 million fine with the US SEC in August 2021 against the lack of clarity regarding the nature of its services.

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