DeFi Defunct? Crypto Lender Cock-Up Mistakenly Credits Users With Millions In Bitcoin

DeFi Defunct? Crypto Lender Cock-Up Mistakenly Credits Users With Millions In Bitcoin

BlockFi Inc., a crypto-lending startup, mistakenly sent some users millions of dollars in Bitcoin as part of a promotion and is now rapidly working on reversing it.

Just under 100 BlockFi users are reported to be affected, with some allegedly receiving as many as 700 Bitcoin due to the mishandled promotional offer.

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

As CoinTelegraph reports, crypto promotional schemes are an old hat in the industry, with many businesses trying to secure customer loyalty through a range of perks and mini handouts.

Yet a small furor over the exchange’s allegedly threatening tone to clients who don’t comply instantly with its directives to return the funds has already erupted on social media.

One user has reportedly posted a photograph of an email allegedly from BlockFi notifying them that “failure to return the erroneously received assets by 5.00 PM EDT today (May 18th, 2021) may constitute a crime and will result in BlockFi taking legal action.” The company has also offered clients a $500 payout in Gemini Dollars (GUSD) as compensation for “any trouble this may have caused.” 

Another Reddit user in the r/blockfi thread has alleged that “2 days after their blunder, I made a withdrawal of USDC which I had deposited a month earlier. Completely unrelated to their claim. Now they send me an email accusing me of withdrawing funds that aren’t mine saying it’s fraud and a crime they will act on if not returned in the next 2 hours.”

The user continued to criticize the platform, claiming that BlockFi “can’t even look through the records to verify what they are talking about. My account with them is only one month old.” “Great way to treat a new customer,” the user wrote.

In its official statement on Reddit, BlockFi tried to reassure customers by noting:

“The situation does not affect any of BlockFi’s ongoing operations and measures have been taken to ensure that an error like this will not be possible in the future. BlockFi’s latest publicly reported AUM is $15B as of Q1 2021. Client funds are not impacted and are safeguarded.”

Bloomberg reports that the firm’s exposure is around $10 million, though that amount is decreasing as more users return the coins, said Zac Prince, co-founder and chief executive officer of BlockFi.

“BlockFi carries loss reserves as part of its accounting policies and this is a fraction of existing loss reserves – so no negative impact to equity or ongoing platform operations,” Prince wrote by email.

“The issue that caused the withdrawals was fixed and incremental safeguards have been developed to prevent any similar issue in the future.”

In March of this year, BlockFi had raised $350 million in a series D funding round led by Bain Capital Ventures, Pomp Investments, Tiger Global and partners of DST Global.

The company was valued at $3 billion.

As James Bianco tweeted in an interesting thread, today’s massive volatility, combined with this SNAFU at BlockFi are the first real stress tests for the DeFi world…

No coiners (most of which are rich CeFi-ers that see DeFi as a threat) are gloating about the decline in cryptoland.

Yes, the casino speculation in cryptos almost demanded this would happened (when and how impossible to predict).

But if you really understand the space, it is a parallel financial system and is now getting this first real stress test. If it makes it through, it would be incredibly bullish.

Today is not the worst day ever (%24h loss). The last such days were March 2020.

What is different now is DeFI was non-existent in those days.

DeFi really took off in June 2020 and was $100B in size at the peak a few weeks ago. So, this is the first real “test” of DeFi.

Will the DeFi protocols “make it?” Will Uniswap, Maker, Compound and the other sites blow up?

So far they have not, and with “on chain analysis” we can watch what is happening real-time. so far, so good.

Watch stablecoins. They are the foundation of the crypto system.

Stablecoins are supposed to trade 1 to 1 with the dollar. As I write

Tether 1.03

USDC 1.01

DAI 1.01

So they are holding together, more or less.

As Bianco concludes, this episode will not end today but the narrative could quickly become “the system held, it works” and turn into an incredibly bullish story. Of course, this assumes it actually holds.

Grab the popcorn and watch the show unfold.

Tyler Durden
Wed, 05/19/2021 – 17:40

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