BlockFi, a cryptocurrency lending service will be releasing zero-fee trading for Bitcoin (BTC), Ether (ETH) among more cryptocurrency. The BlockFi firm is backed by Winklevoss Capital, Galaxy Digital and ConsenSys Ventures.
BlockFI is expanding into trading with an unusual, zero-fee model.
The startup BlockFi has made a name for itself by offering investors methods to realize returns on their crypto funds without selling it. Clients can take out U.S. dollar loans against their crypto collateral or earn interest on their deposits through Blockfi. Firstly users must deposit Bitcoin, Ether or the GUSD stablecoin to use as collateral. BlockFi also services lending to big institutional players. These investors use cryptocurrency loans for trading and paying interest.
On Thursday, December 5th, users will now have an additional option. BlockFi will enable users to buy and sell crypto using their balances. For example, using deposited GUSD to buy more bitcoin.
What is unique about this announcement is BlockFi will not be charging any trading fees. This is due to the service having a different profit model. Through their model, money will be earned through selling data on the users’ trades to big institutional crypto firms. And these firms will act as market makers within BlockFi, providing liquidity to their exchange.
“Market makers want information about what trades are happening, and they get it by having relationships with as many venues as they can support to receive that order flow,” BlockFi CEO Zac Prince said.
Many of these market makers have been BlockFi’s crypto lending clients. With some of them also being equity investors in the startup. Prince BlockFi’s CEO said: “The fact that the institutions will be doing multiple activities on BlockFi will help build strategic relationships with them”.
Expanding from loan business to zero-fee trading
BlockFi made the decision to expand into the exchange business after a customer survey results show that users tend to withdraw their crypto. The reason for withdrawal being for trading purposes.
“We ask a subset of clients ‘why are you withdrawing?’ when they do withdraw and the most common answer has been ‘to trade’,” Prince said. “Our existing user base wanted to trade and requested that we build a product for trading on our platform.”
BlockFi’s crypto trading interface
Attracting first time crypto buyers
BlockFi plans to add even more options for interest-earning accounts and trading. From December 11th, users of the platform will be able to buy and deposit USDC along with Litecoin.
According to Prince, “tens of thousands” of people are now keeping their crypto with BlockFi. Although he did not disclose exact numbers, he stated that more than 50 institutional players are borrowing from them. But that’s not enough, BlockFi’s desire is to also bring in first-time buyers.
For this category of first time buyers, BlockFi is planning to open fiat-to-crypto trading. Sometime during the first quarter of 2020 their fiat gateway is expected to go live.
Prince stated: “Up until now, we’ve been focused on building products for existing crypto investors so they could get the same type of services as in traditional finance. In 2020, we’re going to launch products that will enable us to add new consumers to the crypto ecosystem,”.