Failure Analysis
BlockFi died from a toxic combination of maturity mismatch, counterparty concentration risk, and regulatory arbitrage that collapsed when market conditions shifted. The mechanics: BlockFi...
BlockFi \USA
BlockFi promised to bring traditional banking services to cryptocurrency holders—earn interest on your crypto deposits, take out loans using crypto as collateral, and access credit cards with crypto rewards. The pitch was simple: your idle Bitcoin shouldn't just sit in a wallet. It should work for you, generating yield like a savings account, while you retain exposure to potential appreciation. For early crypto adopters sitting on gains, this was the bridge between the Wild West of crypto and the familiar comfort of traditional finance.
Discover the reason behind the shutdown and the market before & today
Market Analysis
The crypto lending market today is a shadow of its 2021 peak. Celsius, Voyager, BlockFi, and Genesis all collapsed, wiping out over $20 billion...
Startup Learnings
Maturity transformation without a central bank backstop is suicide. BlockFi took overnight deposits and made 3-year loans, the classic banking model. But banks have...
Market Potential
The market for crypto financial services remains substantial—over 50 million Americans own crypto, and institutional adoption continues growing. However, the addressable market has fundamentally...
Difficulty
Rebuilding a crypto lending platform today requires navigating a minefield of regulatory scrutiny that didn't exist in 2017. The SEC has made clear that...
Scalability
The core lending model scales well operationally—software can handle millions of users with marginal cost increases. However, scalability is constrained by three factors: (1)...
Rebuild & monetization strategy: Resurrect the company
Execution Plan
Phase 2
Integrate Anchorage Digital for qualified custody and Fireblocks for secure collateral management. Build API connections so collateral positions update in real-time and automated liquidation triggers work reliably.
Phase 3
Build a mobile-first application where users can: (1) Connect their bank account via Plaid; (2) Transfer BTC/ETH to a segregated custody account; (3) See real-time LTV, liquidation price, and available credit; (4) Draw down credit to their bank account within 24 hours; (5) Add collateral or repay loans instantly.
Phase 4
Launch with 50 beta users from your network—crypto founders, early employees at Coinbase/OpenSea/etc., or miners. Target people with $500K+ in crypto who need $100-200K in liquidity for tax payments, home down payments, or business expenses. Manually underwrite each loan to build your risk models.
Phase 5
Implement Alloy for KYC/AML and Chainalysis for transaction monitoring to ensure regulatory compliance. Get SOC 2 Type II certification and third-party proof-of-reserves audits from day one to build trust.
Phase 6
Refine your risk model based on beta cohort performance: optimal LTV ratios, which collateral types perform best, how quickly you can liquidate in different market conditions. Build automated margin call and liquidation systems.
Phase 7
Scale to 500 customers through direct outreach to crypto-native communities: Telegram groups for Bitcoin miners, LinkedIn targeting 'Head of Finance' at crypto companies, and partnerships with crypto tax accountants who have clients needing liquidity.
Monetization Strategy
Origination fee of 2-3% on each loan (e.g., $6,000 on a $200K loan) plus annual interest of prime rate + 4-6% (currently ~12-14% APR). For a $200K loan held for one year, revenue is $6K origination + $24-28K interest = $30-34K per loan. Target 500 loans in year one at average size $150K = $75M in loan volume = $22.5-25M in revenue. Partner bank takes 40-50% of interest revenue for providing capital, leaving you with $12-15M. Operating costs (custody fees, compliance, salaries for 15-person team) run ~$5M, yielding $7-10M in profit at scale. Unit economics work because you're targeting high-value customers (accredited investors, businesses) who can borrow $100K+ and where manual underwriting is justified. As you build credit models and automate underwriting, you can expand downmarket to $50K loans while maintaining margins.
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