This article was originally published by Austin Litman on proofofwork.ca
Blockfi was a platform that would hold your Bitcoin for you and generate a return. They call the return a yield, APY, whatever. But how do they guarantee these % returns? The answer is they gamble with your funds.
They don’t tell you exactly what they’re investing in; the only thing they tell you upfront is the guaranteed return. But what happened in reality is, Blockfi was using their users’ funds to buy assets they thought would go up, but they went down.
And they couldn’t pay back their user’s funds (Bitcoin) at face value, let alone with an ROI.
In their bankruptcy announcement, they wrote, “Rest assured, we will continue to work on recovering all obligations owed to BlockFi as promptly as practicable.”
But this song has been sung before. FTX said it, and QuadrigaCX said it 3 years ago too. QuadrigaCX was a Canadian crypto company from the bull market of 2017. In 2019 the founder faked his death, and his wife said he was the only one who could recover the funds. Rest assured, though, they’d figure this all out. But that wasn’t the case. It was a rug. They gambled with user funds as well and then needed help to pay them back in the bear market. And they couldn’t get help, so they did that instead. Three years later the funds where magically moved.
So every time you give your money to someone for guaranteed returns, know there is no such thing as guaranteed returns, especially for Bitcoin custody. The entire point of Bitcoin is to secure it yourself.
