Cryptocurrency lending platforms like BlockFi and Compound Finance are slowly becoming one of the most popular places for crypto traders to invest.
While these companies promise to give you a high yield on your digital assets and low-interest loans to grow your portfolio or for other uses, it is vital to make sure you choose what works best for you.
[wptb id="12304" not found ]BlockFi vs. Compound: Introduction
A good understanding of how they differ and what each company offers should make it easier to decide which one to use.
- BlockFi Overview
BlockFi is one of the largest and most sought-after crypto lending platforms, and it controls a significant percentage of the market. All this is despite the fact the company has only been around for a few years.
The company started its operations in 2017 by offering simple credit services but shortly ventured into crypto interest accounts and cryptocurrency-backed loans.
BlockFi is what it is today, thanks to the backing of some of the most reputable names in the investments world, such as Morgan Creek.
- Compound Finance Overview
Compound Finance markets itself as a DeFi (decentralized crypto lending platform) and has been in operation since 2018.
The company gives investors more freedom to dictate things as they can vote on things like the interest rates and which assets the company should support.
Like BlockFi, the company also has the financial backing of large financial investors like Bain Capital Ventures.
BlockFi vs. Compound: Supporting Crypto Assets & LTV
These two companies will not support as many crypto assets as many other lending and borrowing platforms out there. However, they still provide more than enough for beginner and experienced traders to earn interest yield or use for loan collateral.
BlockFi supports at least 10 different crypto assets and tokens. These assets include 6 of the most popular cryptocurrencies out there: BTC, ETH, LINK, LTC, PAX, and PAXG. Additionally, at least 4 stablecoins supported by the platform include Tether, USD Coin, Binance USD, and Gemini Dollar.
When it comes to the LTV, BlockFi will allow traders to borrow up to 50% of the collateral value they provide. Although many companies offer better LTV than this, BlockFi still keeps their interests low enough. This ensures you do not have to bear higher interest rates to get more funds, which is the case for many companies with high LTV.
Compound Finance allows investors to borrow and lend against specific assets, as their decentralized business model does not work like many other crypto lenders. You can borrow or lend out DAI, ETH, USDC, USDT, ZRX, WBTC, BAT, REP, and SAI.
Any crypto trader that has any of these digital assets can start borrowing or lending immediately. With the Compound Finance platform, the users never have to deal with the traditional financial intermediaries. While the company does not set out specific LTV ratios for the loans, the aggregate LTV values for borrowing on the platform typically range between 50% and 75%.
BlockFi vs. Compound: Interest Rates, Lock-in Terms & Payouts
These platforms allow traders to either lend their ideal assets to others to generate interest yields or borrow fiat currency and cryptocurrency using their existing digital assets as collateral. Hence when choosing between these two, you need to understand the rates and terms for these products.
BlockFi charges interest on their crypto-backed loans depending on the LTV the traders choose. While the 50% LTV is the highest on the platform, they still have two other options, which are 20% and 35% LTV. For 50% LTV loans the interest rate is 9.75%, while 20% LTV loan charges 4.5% and the rate for 35% LTV is 7.9%.
When using the BlockFi platform, the loans have a maximum lock-in term of 12 months. The loan is sent out the same day you apply, and when paying, the company allows you to pay as early as you want or do it in portions as they do not charge any early repayment penalties or fees.
The interest rates on the Compound Finance platform are not fixed as they keep changing in reaction to the market movements. Also, the interest rate you pay will depend on the asset that you are borrowing. When writing this piece, the interest rate you pay when you borrow USDC was 3.86%, while for ETH, it was 3.2%.
Products & Features Comparison
While BlockFi and Compound are primarily crypto lending platforms, they differ in packaging their products and features. BlockFi uses a more centralized system and with traditional crypto lending platform products.
If you choose to use BlockFi, you get three main products: the BlockFi interest accounts, the trading account, and crypto-backed loans. The BlockFi interest account allows you to deposit your digital assets with the company, lending them out to other investors at a fee. The company shares the earnings with you by paying interest yields for your assets.
BlockFi pays investors interest yields of up to 7.5% APY, depending on the amount and type of crypto assets you deposit. For, example if you deposit 0 to 0.25 BTC, you will earn a 4% APY, while over 50,000 USDC will earn you 5% APY.
The BlockFi trading account works more like regular crypto exchanges where the traders can buy, sell or swap different cryptocurrencies. However, the trades on the platform are instant, and you start earning interest on any asset you buy immediately.
Compound Finance provides two main products, which are crypto borrowing and lending. Since this is a decentralized system, the traders will not deposit their assets with the company. Instead, the assets go to a “Liquidity Pool,” and the company gives you cTokens that show the value of your assets.
Traders borrow and lend from the liquidity pool, and the interest rates you pay or the interest yields you earn for your assets will depend on the liquidity. For example, when there is more supply of the specific token you want to lend out, the interest yield you get reduces, and the borrowers also end up paying less interest on what they borrow.
Fees Comparison
Both BlockFi and Compound Finance will charge various kinds of fees for the transactions and services they offer. These fees can eat up into your profits and make some services a little too expensive, and so before you decide which one to use, you need to understand and compare them.
BlockFi fees are pretty straightforward to understand. Their withdrawal fees are the most significant since they will typically not charge you anything to deposit funds or crypto into your account. Also, the company does not have any hidden costs, and they always disclose everything you need to pay for a particular product beforehand.
When withdrawing, the fees depend on the specific asset you want to withdraw. Bitcoin withdrawals attract a 0.00075 BTC while Litecoin costs 0.0025 LTC, and the fees for the Stablecoins are $10. The company also provides one free withdrawal each per month for the Stablecoins and crypto.
Although depositing on BlockFi is free, investors need to know that the bank or any other channel you use to fund your account can charge some small fees. For example, many wire transfers will attract a $10 flat-rate fee.
Compound Finance does not charge anything to withdraw fees from their platform. However, the standard origination fee still applies to the specific assets you are withdrawing. The fee keeps changing, but it is typically relatively small and almost insignificant in most instances, whereas all the BlockFi loans also include a 2% origination fee.
Deposits are also free, and any charges you might end up paying will primarily originate from the wallets you are using and not from the Compound Finance platform.
Safety & Security Features
There have been many cases of crypto platform hacking and other security issues over the years. Therefore, when choosing a platform to lend or borrow your assets, it is essential to ensure that whatever you choose takes security seriously enough.
The good news is that both BlockFi and Compound Finance are registered and highly regulated companies, which ensures maximum safety for trader funds. Additionally, they have the backing of the world’s largest investors, meaning you can be sure they have the financial muscle to stay afloat regardless of the many challenges that come with these highly volatile markets.
When it comes to specific security protocols, each company uses a different approach to secure its platform. BlockFi starts by ensuring that all users on their platform are KYC verified so that only genuine traders can access their products. What’s more, the company secures its platform with a wide variety of security features such as advanced encryption and 2FA.
Any trader assets on the BlockFi system are stored with Gemini, which is the company’s custodian. Gemini keeps most assets in secure cold storage to ensure they are out of reach for potential hackers.
Compound Finance will not have any KYC verification, and traders do not even need to register an account with the company to access their services. However, this does not necessarily make the platform insecure. Although still not as safe as the centralized lenders, the company has multiple security features in place.
One of the most notable security features employed by Compound Finance is keeping the investor assets in multi-signature cold storage wallets. Additionally, the company provides bug bounties for any developer that can identify any security weakness. There has not been any security incidence on the platform so far should boost investor confidence.
Insurance Coverage
Insurance coverage provides an extra layer of protection for your digital assets if something goes wrong in the market. Therefore, it is a crucial factor to look at before depositing your crypto with any company.
BlockFi does not have any insurance cover for the trader assets. However, the company probably does not need it, given that they store their assets with Gemini. Therefore, Gemini insurance is what matters.
The good news is that this third-party custodian is that despite storing most of the assets in cold offline storage, they have good insurance coverage for the hot wallets. Gemini uses several world-class underwriters to insure the BlockFi digital assets in hot wallets against theft.
Like most other decentralized crypto lending platforms, Compound Finance does not have any insurance coverage. The decentralized smart contracts cannot have insurance like the traditional finance products.
Minimum Deposits & Withdrawal Limits
When using the BlockFi platform to borrow, lend, or trade, the company will provide withdrawal and deposit limits depending on the specific assets. When adding crypto to your account, the company does not have any minimum limit for both fiat and crypto, meaning you can deposit as little as you want.
Withdrawals limits on BlockFi depend on the specific crypto you are dealing with, as you can withdraw a minimum of 0.003 BTC or 0.056 ETH. If you have anything less than this in your account, the processing can take up to a month. Maximum withdrawals also depend on the currency as the platform allows you to withdraw up to 100 BTC and 5,000 ETH every 7 days.
The Compound Finance platform does not have many restrictions when it comes to withdrawal and deposit limits. For the deposits, you can add as much as you want to the liquidity pool, but what you can borrow or lend out will largely depend on the supply and demand besides factors like the LTV the company gives you.
Account Sign-Up Process & KYC
Getting started on both BlockFi and Compound Finance platforms is relatively straightforward and takes just a few minutes. That said, it is vital to note that with BlockFi, KYC verification is mandatory, but Compound will not require any identity verification.
How to Set-Up Account on BlockFi
- Click on “Get Started” on the BlockFi homepage.
- Enter basic information like email and password on the page that opens
- Agree to the policy and check the legal age agreement box
- Submit the form to complete the registration
- Log into your account and do the KYC verification
- Deposit fiat/crypto to start lending, borrowing, or trading
Getting Started on Compound Finance
- Go to https://compound.finance/ and click on “App” at the top right corner
- Connect to your crypto wallet by choosing from the options that pop up
- Deposit your cryptocurrency to the Compound protocol
- Start lending and borrowing using the cTokens you get
Supported Countries
Given that Compound Finance is a decentralized protocol, you can access and use it from anywhere in the world, provided you have the supported digital assets.
BlockFi also has a global presence, but some of its products, such as crypto-backed loans, are only available in the 47 mainland USA states. Others like the interest yield accounts are available in any country across the world that allows cryptos and is not under any US, UK, or EU sanctions.
Conclusion
While both Compound and BlockFi have their positive aspects, the latter is the better crypto lending company of the two.
With BlockFi, you are not restricted to just lending and borrowing cryptocurrencies, as you can also trade them like in a traditional exchange. Additionally, it offers better interest yields and stable interest rates that are not dependent on market movements, and they have a more secure platform for investors.
Overall, BlockFi is a more straightforward platform for beginners as decentralized protocols like Compound tend to be quite complicated.
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