Introducing Crypto lending platforms
We live in a world that has been stuck with low interest rates for more than a decade, as a result of the quantitative easing that took place because of the 2008 financial crisis. Nowadays, putting money in the bank basically nets zero. Even worse, some countries have negative interest rates, so a bank account costs money instead of growing your savings.
Now, we should give a brief overview of what crypto lending actually is. It is a part of the crypto economy where platforms are supplying cryptocurrencies like Bitcoin, Ethereum, or stablecoins and earning interest in return.
For this reason, many have turned to the stock market and index funds to have some yield on their idle money. But crypto lending platforms offer a different solution. There are many platforms that offer an APY of stablecoin and cryptocurrency deposits and fulfill the role savings accounts used to serve.
In this market, two names stand out: Blockfi and Celsius. They are the leaders among the custodial platforms and this article will compare both services and their merits.
DISCLAIMER: The author is not a CPA or in any way a legally licensed financial advisor. This article provides analysis of technologies, not financial advice.
What makes a good crypto lending platform?
Platforms can be judged by using several metrics, ultimately, it is a personal choice. Here, we’ll present different criteria to help you make an informed decision:
User experience: the world of cryptocurrencies is still very opaque and difficult to understand for new users. Here ease of use and simplicity are key to onboard new people and ensure a good experience for everyone.
Interest on deposits: the reason behind why anyone would use a crypto lending platform. Here we’ll compare the yield given by each platform, and discuss a little on how it is generated.
Security: as custodial platforms security is a major concern in both cases. Here we’ll go over the security features and how likely it is that one of them could be hacked.
There are many more characteristics we could add to the list. Yet, these three are crucial and are what make a good crypto lending platform.
APY on DeFi vs TradFi
In DeFi it is important to understand that APY is gained by a platform providing liquidity to other crypto markets. The crypto market is much smaller than that of traditional finance, and this results in higher risk for users. The higher APY is a compensation for the risks taken by depositors.
Also, crypto loans have higher interest payments than those in traditional finance for the added risk. That is why users can get better rates on crypto assets than using traditional banking.
For small amounts of money, this is not an important distinction. But for investors of large amounts of money the smaller market can be an issue due to the possibility of having a big impact on the market.
BlockFi History and Features
Blockfi was founded in 2017 by Zac Prince and Flori Marquez, the company was created with the goal of providing credit services to markets with limited access to simple crypto financial products.
The company behind BlockFi is a New York City-based financial institution. As such, it’s bound to the laws of that State. In its relatively short existence, it has managed to acquire a lot of success. In 2020, it bought 24,235.578 BTC for the Greyscale fund.
What cryptocurrencies does BlockFi support?
The selection Blockfi supports includes some of the major crypto coins and stablecoins available on the market.
|Crypto coins||Stable coins|
|Pax Gold||Paxos Standard|
|Basic Attention Token||DAI|
BlockFi’s interest rates are arranged in tiers. Deposits of large amounts get a lower rate of interest. For example, deposits under the 50 thousand dollars mark in USDC, GUSD, PAX, USDT, or BUSD will receive a rate of 7.5%. But, for any amount that goes beyond 50 thousand, the rate gets lowered to 5% interest.
Blockfi works best when a user targets a specific tier for results, on a case by case basis. The overall rate may be better on other platforms, but sometimes it’s higher on Blockfi based on how much money the deposit will be.
Blockfi’s fee structure works with a lockdown period:
It’s important to be aware that the fees will play a major role when calculating the profitability of any deposits.
How to get a loan on BlockFi?
Loans on Blockfi are for stablecoins only. To get a loan, a user must provide another crypto asset as collateral. This can be in any of the cryptocurrencies the platform supports. The borrowed amount depends on the amount of collateral provided against the loan, and which loan-to-value (LTV) ratio it represents. LTV is determined by the amount of the loan divided by the value of the collateral for that loan.i
Ease of use (App and privacy review)
New York State is the home of Blockfi and the company needs to follow its laws. For these reasons, it has a very strict Know Your Customer and Anti-money Laundering process or KYC/AML. There is no real anonymity when transacting on Blockfi.
Each account in the site is tracked, and all balances are carefully followed by the company. There is no way to be anonymous when doing transactions on Blockfi. Also, if you move your crypto to your external wallet -a hardware wallet for example- then the transaction can be tracked. That’s true for any custodial crypto exchange.
Security on the BlockFi lending platform
Blockfi has a good history in terms of its security. In the entire history of the company, no funds have ever been stolen. But there have been some security hacks, last year some client data was stolen through a sim card attack performed by one of Blockfi’s employees.
On March 10th 2020, Blockfi’s email account was hijacked. Offensive emails were sent from the account to several journalists in the crypto news business. The incident was more embarrassing than dangerous. Finally, Blockfi sent 700 BTC by mistake last year, not really a hack, but a dangerous oversight.
Blockfi supports 2-factor authentication using Google Authenticator.
How to Sign Up for Blockfi
On Blockfi there are several levels for an account. On the most basic level, a user needs to just use his name, date of birth, and email to create the account. Yet, this level does not allow to deposit or withdraw crypto assets from the platform.
For any actual crypto transactions all users need to complete KYC/AML check. The KYC part involves providing proof of one’s identity and residence. AML involves showing that the money used for the crypto transactions has a legal origin, it could be employment, income from investments, income from rent, etc.
Both are needed to unlock the full capacities of the site. Blockfi has to comply with the Federal and State legislation for financial institutions. So, their KYC/AML protocol is more demanding than from companies not located in the United States.
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Celsius History and Features
Celsius Network is a blockchain lending platform based in London, United Kingdom. It was founded in 2017, but it incorporated itself in September of 2018. The company is considered by many as a cryptocurrency lending and borrowing leader. It has raised $93.8M in venture capital, private equity, and an ICO for its native token CEL.
It is one of the biggest competitors to Blockfi in the custodial space. Both companies are widely seen as fighting for the same market. Additionally, they are a common stop for people entering the crypto economy for the first time. As the services they are able to provide would not be possible for decentralized platforms.
What cryptocurrencies does Celsius support?
Celsius has a wide selection of cryptocurrencies that they support. The selection makes it one of the most complete platform in term of custodial services
How to get a loan on Celsius?
The first thing to understand is that Celsius only gives out loans on US dollars and stablecoins. The choices for the loan are USDC, USDT, TUSD, GUSD, PAX, DAI. To take out a loan, any of the supported crypto assets on the platform can be used as collateral.
The type of repayment is balloon loans, which means interest is paid every month and the principal amount is paid back in one payment when you close the loan.
As CEL is the native token of Celsius, people using it get better rates and other incentives. It is important to be aware that using CEL will improve the profitability margins of loans and deposits.
Ease of use (app and privacy review)
Celsius like any other custodial service requires KYC and AML. There has never been a case of identity theft on Celsius, so the privacy protocols are very good on the platform. The platform contracts its KYC/AML process to a third part named Onfido. It’s a very big KYC service provider, so there are no major issues there. But it is important to know that Celsius is not keeping the data themselves.
Celsius has a very easy to use interface. The company has been hard at work creating articles and tutorials on how to use every feature of their platform. It is a great first entry point for people new to crypto.
The platform also has 24 hours customer support. So, it provides assistance to people having issues with their operations.
Celsius security concerns
As we said before, there has never been a breach of security in Celsius. Personal information of users or crypto assets have never been stolen from the platform. The only incident Celsius ever had was when an unauthorized third party gained access to its email distribution system to send phishing emails and SMS messages.
This resulted in some Celsius users getting nefarious messages that appeared that they were from the platform itself with the intent of phishing users and stealing their crypto. However, funds on the platform were safe.
Celsius supports 2-factor authentication using any app like Google Authenticator.
The Celsius sign-up process
Celsius works with tiers. To open an account a person only needs an email and his information. The next tier which allows deposits and withdrawals requires KYC using a national document and a clear selfie of the user.
In order to get loans of higher amounts, a user needs to provide AML information regarding the origins of his/her personal income. This is done to ensure no criminal enterprises are not accessing the market to launder money.
BlockFi vs Celsius head-to-head comparison
|User Experience||Good, friendly interface||Good, friendly interface|
|KYC/AML||Both are required.||It works on different tiers, only the top tier needs AML.|
|Security||Good, with some breaches of security.||Good, only one incident with no data stolen.|
|Crypto assets supported||Limited to a few.||Big selection of more than 40 assets.|
|Deposit interest rate||Variable and done using a tier system.||Fixed, but people using CEL tokens get better rates.|
|Loans||Fixed and only for stablecoins.||CEL token users get better rates. Possible to get a loan for US dollars|
If we had to make a judgment, Celsius would win narrowly. It has a bigger selection of crypto assets, CEL token perks, and the ability to get loans for US dollars. These features make it a platform that gives it a slight edge on the market.
Blockfi is also perfect for those beginning their crypto journey. For people in the US it may be easier to access because it is located in that country. Also, the interest rate tiers make it more flexible for those looking to optimize their yields.