BlockFi sent out an email to users Wednesday evening for investors looking for reassurance in the bear market. We have been battle-tested through all types of market conditions, thanks to a $400 million credit facility from FTX with the option to buy BlockFi outright for an additional $240 million. BlockFi's ability to broker a deal without affecting customer funds or halting withdrawals to support these claims is one of the reasons why it is necessary to stop withdrawals to support these claims. The need for funds in the first place may cause investors to be worried.
Following the collapse of Terra Luna, there was widespread contagion throughout the criptocurrency markets. A recent report by Nansen highlighted how stakedEthereum contributed to the increased pressure on all parts of the industry. The fallout from these events has hit BlockFi, and may not be representative of its business practices and profitability.
A key area discussed by the industry is risk management, which BlockFi believes is essential to our success. The email claimed that the current FUD hasn't stopped the company from navigating through this period of market volatility. The firm has outlined its operations over the last few weeks and is a core pillar of BlockFi's values is Transparency Builds Trust. The Credit Agreement with FTX, effective risk management and a commitment to its customers and BlockFi s current processes were highlighted as the key outcomes of BlockFi's current processes.
It stated that 100% of retail client withdrawal requests have been honored while only 10% of client funds are held as collateral. 50% of the positions are held in short-term positions, and the rest may be in longer-term loans to third parties that generate yield.
A bank run of over 10% of its assets could delay funds by a week if short-term positions are available on a maximum 7 day term. In the 2008 banking crisis, the UK bank, Northern Rock, failed when customers tried to withdraw just 4% of its reserves. BlockFi's level of collateral is now traditional in interest-bearing activities such as fractional reserve banking. In the US, a bank must hold at least 10% of its reserves at all times, while in the UK, the number is 12.5%.
BlockFi has maintained a positive Net Interest Margin NIM for 9 consecutive months. This means that it earned more in interest than had to pay out to customers, resulting in a positive return on its investments. In May 2022, BlockFi was cash-flow positive, and it paid out over $10 million in interest to clients in June.
The interest rate for customers on BTC, ETH, USDC, GUSD, PAX, BUSD, andUSDT has been increased as a result of the increase in interest rates. Interest rates are adjusted based on market conditions. It provided 10% interest on stable coins such asUSDT in the year 2021. After the market downturn, the rate had dropped to 7%, but increased to 7.5% after the deal with FTX.
The company stated that it has never had dealings with Celsius and does not partake in speculative bets on DeFi protocols.
The email ended with a quote from Zac Prince, CEO and founder of BlockFi.
At some point in the future, I am very confident that we are going to look back over the next few months and that was a phenomenal time to buy. It's going to happen because there is so much long-term growth ahead for this asset class.