What can the crypto space or more specifically what can those new to crypto learn from BlockFi's royal fuck up? There's defiantly a lesson to be learned here but it's not going to come from BlockFi.
BlockFi is a private corporation that offers centralized consumer financing services in the form of collateralized crypto loans in addition to risk management, financial technology, and digital financing solutions.
The company is NOT about to shed light on one it's biggest weaknesses, but thanks to their latest royal fuck up they've just done it! They're centralized, and require trust, and now that's exposed.
Risks of Centralized Financial Services
The lesson to be learned here is that by trusting your funds to centralized entities like lending platforms or exchanges you're exposing yourself to the risk of hacks, exit scams, insolvencies, or just plain incompetence which was likely the case here with BlockFi.
At this stage it doesn't look like users were negatively effected and had to suffer loses but instead some appear to have benefited from the error, one lucky user reportedly receiving 700 BTC!
Whose to say it couldn't have been the the other way around? You're funds are mistakenly sent to another user, or locked up, or lost. Sure there's insurance to protect users from these types of mistakes but the point is there's a massive movement within crypto to create systems built specifically to avoid these issues, enter Decentralized Finance.
By the way how big was this mistake? BlockFi still hasn't come clean with that info, and why would they?
Sure it's early and there may not be many decentralized platforms offering these same financial services with the low friction that users have come to expect with modern UX, but they're out there.
The Timing is Awkward For a Couple Reasons
I wonder what kind of damage this does to the reputation of the crypto industry? Or is it simple so early there's just not enough eyeballs on the space yet to really be concerned about it as a whole?
Certainly it's a major snafu that BlockFi will be looking to put behind them quickly and I see they're already working to change the narrative as they quickly rolled out a press release with some positive news.
"BlockFi Announces No Annual Fee and Updated Benefits for the BlockFi Rewards Visa Signature Credit Card."
You can bet your bottom dollar BlockFi is in full damage control mode right now, even more so considering they've recently completed a series D raise to the tune of $350M and are likely looking to go public with an IPO, later this year?
By the way that Series D raise was worth $350M and put the company at a valuation in the area of $3B.
They'll want to put in some work in and spin out some positive press to change the narrative, especially if they plan to go public later this year and capitalize on the bull run.
That said, this BlockFi fuck up is a perfect example of what's wrong with centralized finance and the type of issues that decentralized finance aims to solve.
Ciao for now,
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