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

BlockFi, the next giant to fall? – BlockFi is a platform of loan CeFi (centralized finance). This offers its users the ability to generate a return on cryptocurrency deposits. However, in the face of the general decline in cryptocurrency markets, it could be in a very bad position. It remains to be seen whether BlockFi will join the list of declining CeFi platforms, such as Centigrade Where is it Babel Finance.

CeFi players in turmoil

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

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

Recently, Centigrade And Babel Finance I was forced to block withdrawals on their CeFi platform due to lack of liquidity. Since then, these platforms have tried somewhat to avoid liquidations.

Unfortunately, this situation doesn’t appear to be specific to these platforms. Indeed, it is now around BlockFi be in turmoil after the publication of confidential documents. Note that for the moment it has not been possible to verify the veracity of the documents, presumably from a leak.

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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 derive from a leak.

One of the leaked BlockFi documents – Source: Twitter

Subsequently, the data in these documents was analyzed by a number of Internet users, including @otterooowho dissected them in a twitter thread. Spoiler: It doesn’t smell good!

“BlockFi’s income statement is really bad. It’s a jumble of negative numbers, let’s find out together. “

Tweet from @otteroooo

First, this report shows that BlockFi has had a negative operating result in the last 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 hit an all-time high of $ 69,000 in the year 2021. So how did BlockFi get so unprofitable in a bull market? “

Tweet from @otteroooo

Another point is, meanwhile, the cold in the back. Indeed, according to information gathered by @otteroooo, BlockFi has $ 467 million in its portfolios, versus $ 13.5 billion normally deposited in its services loan.

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

Tweet from @otteroooo

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

CurrentlyyouBlockFi just 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 would distribute a total of $ 400 million return to its users in 2021.

However, over the same period, their loan income was only $ 313 million. Makes a $ 87 million hole distributed to users without really understanding where they come from, as they don’t come from loans.

In 2020, the hole represented 14 million dollars.

“I don’t know if this is the result of a (non) strategic decision to make huge losses year after year for market share (20% sure), or if the CeFi loan business model is simply a failure (65% of certainty), or if BlockFi is decidedly incompetent in basic mathematics (comments reserved). “

Tweet from @otteroooo

Whether these revelations are true or not, Iit’s safer move away from CeFi platforms waiting for the storm to pass. Indeed, BlockFi could be the next CeFi service to tackle 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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