Locking crypto into lending platforms that offer interest rates orders of magnitude above traditional bank savings accounts can be lucrative. But are its days numbered?
The Securities and Exchange Commission has fired another shot across the bow of high-yield cryptocurrency lending.
BlockFi is being investigated by the SEC over its BlockFi Interest Accounts (BIAs), which offer clients annual yields of as much as 9.5% for parking their cryptocurrency into lending programs.
Under new SEC Chairman Gary Gensler, the agency has been more aggressive in pursuing these financial products
Lucrative But Risky
Crypto lending is lucrative, but can be risky, particularly for borrowers, who typically put up cryptocurrency worth at least 150% the amount they want to borrow, which is typically taken in stablecoins or dollars. This collateral will be sold if its price falls too close to the value of the loan — a process known as a margin call.
BlockFi offers U.S. borrowers 9.75% interest rates on loans in which collateral worth 200% of the amount borrowed is put up — a 50% loan-to-value (LTV) ratio. At 300% collateral — 35% LTV — borrowers get a 7.9% rate. At 500% — 20% LTV — borrowers can access a 4.5% interest rate.