BlockFi vs. Compound: Interest Rates, Fees, Lock-in Terms, & Payouts

What Is BlockFi and How Does It Work?

BlockFi is one of the most popular crypto lending platforms that offer crypto-backed loans and interest-bearing accounts. Namely, it allows its users to use cryptocurrency as collateral for loans while also paying interest for holding crypto. Because of these features, BlockFi has become one of the most popular go-to places for people looking to invest their crypto.

While it doesn't support the broadest range of cryptocurrencies, BlockFi does support some of the most popular ones, like Bitcoin, Ethereum, and Litecoin. Additionally, it supports many stablecoins like USDC and GUSD, which is useful when people want to hold cash in non-volatile cryptos.

The most important feature of BlockFi is the option that allows you to use your cryptocurrency as collateral for loans. This means that you can borrow money against your crypto holdings, and if you don't repay the loan, BlockFi can take your crypto as payment. It also offers interest-bearing accounts for customers who want to deposit their crypto and earn interest on it. The interest is paid out in the form of the cryptocurrency that is being held, so if you hold Bitcoin, you will earn your interest in Bitcoin.

What Is Compound and How Does It Work?

Like BlockFi, Compound is a decentralized lending platform built on the Ethereum network that allows users to earn interest on their cryptocurrency deposits. It is one of the most popular DeFi protocols because it is easy to use and has a wide range of supported assets.

Compound supports almost all popular cryptos like Ethereum, Bitcoin, and Litecoin, as well as some stablecoins. The platform allows users to deposit their crypto and earn interest on it, which is paid out in the form of the cryptocurrency that is being deposited. Compound also allows users to borrow against their crypto deposits, similar to BlockFi. However, the most significant difference is that Compound is decentralized (DEX), while BlockFi is a centralized platform (CEX).

This means that, with BlockFi, you are trusting a centralized company with your assets, while with Compound, you are lending your crypto directly on the blockchain without having an authority oversee it. Compound is also more transparent than BlockFi, as all of the interest rates and collateral requirements are set by the protocol itself, not by a centralized entity.

The Similarities and Differences Between BlockFi and Compound

Another one of BlockFi's attractive offers is its interest account. It allows users to earn up to 8.6% interest per year on their crypto deposits, which are paid out monthly in the form of the cryptocurrency that is being deposited. As we mentioned above, if you deposit Bitcoin in your BlockFi account, you will earn interest in Bitcoin every month.

Compound also offers an interest-bearing account, but the interest rates are set by the protocol itself and are variable. Currently, the Compound distribution APY ranges anywhere from 0.03% to 8.25% per year, depending on the cryptocurrency that is being held in the wallet.

Compound also has a feature that allows users to borrow against their crypto deposits. However, the interest rates on loans from Compound are much higher than they are on BlockFi loans. For example, the interest rate on a Bitcoin loan from Compound is currently around 20% per year, while the interest rate on a BlockFi loan is only 4.5% per year.

The Advantages and Disadvantages of BlockFi and Compound

BlockFi

Pros

• Allows you to use your crypto as collateral for loans.
• Pays better interest on deposits in cryptocurrency.
• Supports a wide range of cryptocurrencies.
• No deposit limits or fees.
• Offers very flexible fiat loans.
• Provides one free withdrawal every month.

Cons:

• Is a centralized platform
• Pays interest monthly rather than daily or weekly.
• Charges withdrawal fees after using the free withdrawal.

Compound

Pros:

• Pays interest on deposits in cryptocurrency.
• Allows you to borrow against your crypto deposits.
• Is a decentralized platform.
• Uses smart contracts rather than intermediaries.
• Liquidity pools.
• Ideal for Ethereum investors.

Cons:

• Primarily supports Ethereum and ERC-20 tokens.
• It doesn't support too many stablecoins.
• You can't purchase any assets directly on the platform.

Conclusion

To sum it all up, if you are looking for slightly better stability and want to avoid the risks of volatility, BlockFi is the better choice. Compound is a platform better suited for investors who want to stay active and take more risks to earn higher rewards from their investments. Remember that the latter is also decentralized, so do your research and evaluate which one suits you better.