Blockfi Screwed Up: The Generous Present Of Over 700 BTC
Centralization concerns are still apparent for many early Bitcoiners. DeFi has streamlined cash flow through a trustless network; however, CeFi, which operates similarly to a centralized financial entity, grants fund security. Thus, platforms such as BlockFi, Nebeus, or other centralized financial services have gained trust and a more significant part of the market.
Blockchain’s value of protecting a network of data and accounting for each transaction is paramount in a service that could incur financial losses due to human error. CeFi services are subjected to human errors and even hacks. As some early adopters of crypto have stated, hacks, exit scams or insolvencies could be detrimental for customer’s funds. To that end, BlockFi, a financial start-up that provides crypto-backed lending and borrowing, had reinforced cryptocurrency’s beliefs of not relying on centralized custodians when they sent a payment of 700 BTC instead of USDT.
Am I right in thinking that BlockFi was meant to send $701 but sent this person 701 Bitcoin? pic.twitter.com/hlFtckSWyA
— Ric Burton ‣ (@ricburton) May 19, 2021
BlockFi’s Non-DeFi Advent
As part of a promotion running from March 17th to March 31st, platform users would be rewarded in USDT based on the trade volume incurred during that time. Bonuses would be handed out in USDT; however, due to an error, recipients were granted BTC denominators instead of USDT. The company released a statement in which they acknowledged the mistake, mentioning they would work on reversing the payments.
Although bonuses were to be handed out on May 31st, no more than 100 users received their bonuses early. Posts on social media platforms such as Twitter and Reddit were full with users highlighting the confusion. One user Tweeted an image about his wallet being funded with 700 BTC, while others mentioned their inability to withdraw their previous deposits or trade on the platform.
The status of the problem goes deeper as some users claiming they were falsely accused of withdrawing funds, which they added themselves. BlockFi has stated they already contacted the clients who were funded with the wrong amount. After the mistaken fund allocations, the start-up’s exposure is nearing $10 million USD; however, some users are already returning the money. Additionally, BlockFi emphasized that “no negative impact to equity or ongoing platform operations” as the centralized financial company still holds “loss reserves.”
On the Flipside
- Unlike DeFi, centralized finance products provide more fund security but can incur human errors.
- DeFi presents a more viable alternative to centralized financial products as it does not require any intermediaries.
- The status and value of DeFi are being reinforced after BlockFi’s money fiasco, which poses threats for both investors and platform users.
The Centralization Tone
Human errors are a given in any system, and global financial institutions are wary of that. Recently Citibank lost roughly $900 million after sending a higher amount than initially agreed on. BlockFi’s error is on a smaller scale compared to CitiBank, but the company managed to recoup some of its spendings through legal action. By contrast, BlockFi activity in the blockchain space bears more complexities when handling lost funds. As a result, reports on social media highlight an aggressive tone claiming legal action will be taken if the funds are not refunded by a given time. Additionally, BlockFi stated it would reward users who refund the amount with 500 USDG.
BlockFi raised an additional $350 million in Series D funding through Bain Capital Ventures, Pomp Investments, Tiger Global, and now the company is valued at over $3 billion. Whether BlockFi will recover the funds is currently in a grey area; however, given their recent capital increase it, not an understatement to mention they have additional “financial pools” to replace the lost capital.
In contrast to existing regulations where users who are credited with an unmerited amount of money cannot revendicate them. However, given BlockFi operates in a somewhat unregulated market, this brings forth an interesting question, whether BlockFi can legally mandate customers to return their cryptocurrencies. Still, cryptocurrencies cannot be reversed if once payment has been made, and, BlockFi is required to make manual corrections to revindicate their funds. However, the company is facing backlash due to the ongoing errors which commenced after sending the first payments in BTC in the first place.
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