BlockFi vs Compound
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Are you one of those people who have turned their bank account into a savings account only to find yourselves dissatisfied with the returns? Did you know that you could earn much more if you hold onto cryptocurrency instead?
That’s right! Crypto interest platforms are the newest trend on the crypto market. Why get frustrated over balance requirements, low and changeable interest rates, and withdrawal limits when you can invest in cryptocurrency and receive high-yielding interest payments monthly, weekly, or even daily.
Recently, there has been a lot of talk about BlockFi and Compound Finance, two platforms that make it swift and easy to put your idle cryptos to use. In this guide, we’ll talk about their services, interest rates, supported currencies, fees, and limits in order to help you pick out your favorite.
Let’s get started!
About the Lending Platforms
In just three years since the company was founded, BlockFi managed to become one of the most sought-after crypto interest and lending platforms. Not only locally, in New York City and the US in general, but around the world as well, which is why the company has felt the need to open additional offices in New Jersey, Poland, and Argentina.
The team behind BlockFi has had over 10 years of experience in the online lending sector. However, with the increasing number of challenges and shortcomings of the traditional financial system, it has become clear to them that they have to adapt their services to fit the current digital era, the era of cryptocurrency and smart economy.
Motivated to make traditional banking services a possibility for crypto investors, albeit faster and cheaper, Zac Prince, BlockFi’s current CEO, and Flori Marquez, SVP of Operations, co-founded BlockFi in 2017.
Their platform started with simple credit services, followed by attractive crypto interest accounts, crypto-backed loans, and crypto lending. One of its newest additions has been the fee-free crypto to crypto trades.
However, BlockFi wouldn’t be able to grow as a platform without the institutional support from investors like Valar Ventures, Morgan Creek, ConsenSys Ventures, Galaxy Digital, Fidelity, Akuna Capital, SoFi, and Coinbase Ventures.
On top of that, BlockFi’s primary custodian is Gemini, the NYSDFS-regulated exchange founded by the Winklevoss twins.
Compound Finance is a decentralized (DeFi) crypto lending platform founded in September 2018 by the Californian company Compound Labs Inc. and built on the Ethereum blockchain.
At the start, Compound’s protocol was centralized but their ultimate goal had always been to achieve complete decentralization. After the release of their native governance token COMP, the platform has become more decentralized and community-driven.
COMP token holders can vote on protocol proposals including adding support for new digital assets and reassessing the interest rates and crypto collateral. COMP has even been listed on the popular global exchange, Coinbase.
Like BlockFi, Compound is backed by leading investors such as Andreessen Horowitz who helped Compound Finance raise $25 million in a financial round in 2019, one of the largest venture capital investments in a DeFi startup. Other investors including Bain Capital Ventures, Polychain Capital, and Coinbase Ventures.
Compound Finance vs BlockFi: The Comparison
Bitcoin (BTC) and Other Cryptocurrencies
BlockFi doesn’t support a wide range of crypto assets but it does include the most popular ones. You can deposit Bitcoin (BTC), Ether or Ethereum (ETH), Litecoin (LTC), the three most promising cryptos for 2020, and a number of stablecoins including Paxos, PAX Gold, USD Coin, Gemini Dollar, and Tether (USDT) for users outside the States.
It’s always safe to use one online platform for the financial services you need which is one of the reasons why BlockFi has recently launched a crypto-to-crypto trading platform with zero deposit fees. Now, you can both purchase digital currencies in exchange for the cryptos you already own and store them in the BlockFi interest account.
BlockFi has promised to add support for fiat to crypto trades soon but in the meantime, you can swap your crypto for the less volatile stablecoins such as Gemini Dollar, pegged at a 1:1 ratio to the US Dollar.
Compound Finance, on the other hand, supports only Ethereum-based assets or ERC-20 tokens because the Compound protocol was built on the Ethereum blockchain itself.
During Version 1 of the protocol, Compound only supported Ethereum (ETH), Basic Attention Token (BAT), Dai (DAI), Augur (REP), and 0x (ZRX). In Version 2, launched in May 2019, the platform added the stablecoins USDC and USDT, and two more ERC-20 tokens: Wrapped BTC (WBTC), Legacy DAI (SAI), and Uniswap (UNI).
BlockFi Interest Account
One of the most attractive features over at BlockFi is their crypto interest account. Customers are invited to deposit their crypto investments on the platform and let them accrue interest over time. There’s no minimum deposit limit and you can quit whenever you want.
BlockFi pays the interest monthly, i.e. every first day of the month, and you can choose to receive these interest payments in a different currency from the one you deposited. Once you start earning interest on your initial deposit, you automatically get compound interest or interest on your interest as the months go by
You can earn interest on all the cryptocurrency on its list. However, different cryptos generate different interest rates. Luckily, BlockFi has quite competitive rates on all assets. During the COVID-19 pandemic, the company decided to raise its interest rates as an incentive for its customers.
The current interest rates are as follows:
|BTC (Tier 1)||0 – 2.5||6% APY|
|BTC (Tier 2)||> 2.5||3.2%|
Fees and Limits
One of the few BlockFi drawbacks is the withdrawal fee. The platform only allows one free withdrawal for cryptocurrency and one for stablecoins per month. Additional withdrawals incur the following fees:
- 0.0025 BTC for Bitcoin withdrawals with a maximum limit of 100 BTC per week.
- 0.0015 ETH for Ethereum withdrawals with a limit of 5,000 ETH per week.
- 0.0025 LTC for Litecoin withdrawals with a limit of 10,000 LTC per week.
- $0.25 USD for stablecoin withdrawals with a limit of 1,000,000 stablecoins per week.
- 0.0025 PAXG for Paxos Gold withdrawals with a limit of 500 PAXG per week.
Luckily, BlockFi users are no longer subject to withdrawal termination penalties if they wish to request a withdrawal earlier than the last day of the month.
BlockFi Crypto Loans
There are cases where crypto investors are forced to sell their crypto for fiat currency. For example, even though cryptocurrency is gaining mainstream adoption around the world, crypto assets are still not accepted as a payment method for serious investments such as buying a house.
On the other hand, if you sell your cryptos you risk missing out on a great price surge in the future and you’ll have to pay capital gains tax too. BlockFi offers an alternative to avoid these scenarios – crypto-backed loans.
Customers can deposit BTC, ETH, LTC, or PAXG and request to borrow USD. There’s no support for other fiat currencies at the moment. BlockFi loans your crypto collateral to businesses that match its regulatory criteria.
On Compound Finance, earning interest and crypto lending services are intertwined. However, instead of directly lending money to a borrower, with the platform as your intermediary, you supply assets to the Compound Finance “Liquidity Pool”.
Other users can borrow cryptos from this pool with one difference – the exchange of assets is done via smart contracts that match borrowers with available assets and control the payments.
On top of that, these smart contracts use complex algorithms to figure out the right interest rate based on the platform’s currency supply and demand levels. This makes Compound far more decentralized than other lending platforms.
There’s a separate liquidity pool for every ERC-20 token. In return for lending their crypto holdings, users earn interest payments in the form of cTokens, i.e. ERC-20 tokens that represent a fraction of the asset you’ve deposited and can be redeemed at any time.
Although interest rates are liable to frequent changes, here’s a table including the current rates listed on Compound Finance’s website:
|Market||Supply APY||Borrow APY|
Both BlockFi and Compound are highly regulated platforms with sophisticated security measures. They rely on trust companies to manage their clients’ funds and keep them safe in cold storage. BlockFi’s custodian, Gemini, is regulated by the NYDFS and was the first crypto exchange to pass a SOC 2 Type 1 examination. To become a member of the platform, users have to perform KYC checks and verify their identity.
As a decentralized exchange, Compound doesn’t require KYC checks but that doesn’t mean the platform underestimates cybersecurity. On the contrary, Compound offers bug bounties for developers who will spot a fault in the open-sourced code.
Moreover, it has partnered with reliable platforms like Coinbase Custody, Anchorage, and BitGo to secure safe wallets for its customers.
Ease-of-Use & Customer Support
BlockFi and Compound are web-based platforms but they also feature mobile apps that you can download to your device. This way, you’ll have access to your crypto holdings, wallet balance, loans, and interest rates everywhere you go.
You only need some basic knowledge in technology and cryptocurrency to be able to run the platforms. You can set up your account in just a few simple steps, provide the right documentation (on BlockFi), and you’re already part of the platforms’ ecosystems.
Both platforms provide satisfactory customer support. They’re very vocal and responsive on social media and have received praises for their transparent online presence. Their websites feature FAQ sections with numerous informative articles (in the case of BlockFi) and a complete documentation and a whitepaper on Compound’s website.
You can send them support tickets via email or use BlockFi’s Telegram group.
Pros and Cons
- Supports stablecoins as well as cryptos.
- Zero deposit fees and no deposit limits.
- More competitive interest rates and compounding interest.
- Great flexibility on fiat loans.
- Fund insurance managed by Gemini.
- Users can choose the cryptocurrency they want to earn interest in.
- Users can withdraw their funds at any time with one free withdrawal per month.
- Most services are decentralized.
- High-level liquidity pools for crypto borrowers.
- Sophisticated smart contracts instead of intermediaries.
- Great for Ethereum investors.
- Pays interest monthly instead of weekly or daily.
- Incurs withdrawal fees.
- Supports only Ethereum and ERC-20 tokens.
- No support for stablecoins.
- You can’t purchase assets on the platform.
In this guide we had the chance to compare two excellent crypto lending and interest platforms that although similar, appeal to different traders altogether.
If you’re someone who’s interested in making passive income from your crypto holdings and your target coins are Bitcoin or other prominent altcoins, BlockFi is the right choice for you. If you want to exchange your cryptos for stablecoins and avoid volatility risks by earning interest payments on more stable currencies, BlockFi has flexible terms and incredible rates.
On the other hand, if you’re primarily looking for a lending and borrowing platform to make the most out of your investments, Compound Finance will be right up your alley. The fact that this platform aims to become 100% decentralized is yet another bonus.
How do these two DeFi platforms fare against Nexo and Celsius Network?
BlockFi, Compound, Nexo, and Celsius Network are four of the most popular crypto interest and lending platforms. What sets BlockFi apart from the other three are the competitive interest rates, the compound interest feature, and its fully-fledged crypto trading interface. Compound, on the other hand, is the only platform out of the four that supports ERC-20 tokens and justly bears the title DeFi platform.
What are the benefits of crypto lending?
At some point, if you’ve made a big crypto investment, you might need to exchange them for fiat money to pay for your credit card or purchase a home, for example. Crypto lending gives you the option to borrow fiat and still keep your crypto holdings. You’ll simply use them as collateral and the platform that you’re using will lend them to companies that need crypto capital. Another benefit is that crypto lending and crypto loans aren’t subject to capital gains tax.
Can you earn compound interest on stablecoins?
Yes. A number of lending and crypto interest platforms, including BlockFi, include the option to deposit stablecoins and start accumulating initial interest and later on compound interest as well. For example, if you deposit GUSD on BlockFi, you get to enjoy an 8.6% APY.
Can you make passive income with Ethereum?
If someone makes passive income it means that the individual earns money outside of work and it can typically be via renting a property or by taking part in a business that yields returns without much effort on the part of the participant. Therefore, gaining crypto interest over a period of time on an asset like Ethereum would be considered passive income.
Disclaimer: Digital currencies and cryptocurrencies are volatile and can involve a lot of risk. Their prices and performance is very unpredictable and past performance is no guarantee of future performance. Consult a financial advisor or obtain your own advice independent of this site before relying and acting on the information provided.