BlockFi has changed the terms of its interest-bearing cryptocurrency deposit account just weeks after launching it.
Beginning April 1, for accounts with more than 25 bitcoin or 500 ether, BlockFi will pay only 2 percent on the amount deposited above the threshold, not the originally advertised 6 percent, according to an email sent to customers March 20 and a company blog post that same day.
“Due to the demand for our product, we’re making a few changes to our product pricing that will affect your account starting in April,” the company said in the email.
The interest rate on balances below the thresholds will remain 6 percent, compounding monthly for an annual percentage yield (APY) of 6.2 percent, according to the email, as well as a tweet sent by BlockFi’s director of marketing, Brad Michelson.
“Everything below 25 BTC still gets the 6.2% APY,” he wrote.
BlockFi CEO and founder Zac Prince told CoinDesk that the change was caused by the unexpectedly large demand from institutional clients that wanted to deposit more than $1 million worth of crypto.
Prince said:
“We saw a rapid uptick in institutional participation, at sizes that BlockFi and the current crypto borrow market is not able to support at a 6% rate. Generally, large depositors would have a call or meeting with us before depositing and we would tell them not to contribute more than $1 million for the time being. We started to see institutional accounts created followed by deposits well over $1 million, which is not who we think of as our core client and not the type of activity we want at this time. We may create structures to accommodate this type of activity via different vehicles in the future.”
The BlockFi blog post notes that the account was meant to be “a consumer-focused product,” and says the adjustment was necessary to ensure the company “can support as many clients as possible.”
The minimum deposit amount to earn interest may drop in the coming months, further to BlockFi’s goal of serving “the average crypto consumer,” the post added.
According to Prince, fewer than 50 customers, or 1 percent of the total clientele, were affected by the change.
Fair warning
While some large customers may be disappointed by BlockFi’s change, they shouldn’t be surprised.
The company’s terms and conditions give it a great deal of flexibility over the rates it can pay, explicitly saying that BlockFi will change the rate at its discretion.
BlockFi officially launched the deposit product on March 5, but before that had been beta testing it since January.
The interest is denominated in crypto, is supposed to be paid monthly and the way BlockFi intends to earn it is lending crypto to financial institutions, Prince told CoinDesk in an interview this week.
The product attracted a lot of attention and got BlockFi $35 million in deposits during the first two months of existence, according to Prince.
The company’s terms and conditions page will be updated to reflect the new interest rates, he said on Twitter.
UPDATE (March 22, 17:45 UTC): This article has been updated to include additional quotes from BlockFi explaining the interest rate reduction.
BlockFi CEO Zac Prince image by Anna Baydakova for CoinDesk