BlockFi blocks withdrawals – The Cryptonomist

The BlockFi trading platform, among the most robust and least affected by the FTX contagion, changes its mind and with a statement posted on its Twitter account informs that it will limit operations on the platform including blocking withdrawals.

BlockFi remains a victim of the current crypto market meltdown

The Jersey City-based platform in the wake of the turmoil generated by the FTX gate has decided to take drastic action. 

Using Twitter as a sounding board, the cryptocurrency exchange wanted to issue a statement to its customers and future customers. 

The tweet relates to operations, which according to the missive will be subject to severe limitations in operations including blocking withdrawals. 

It is also advised (as the function in this case is not blocked) not to make purchases. 

The statement reassures BlockFi account holders about the choices made and explains that the move is solely and only a function of better understanding how to ensure optimal service to its users. 

Rather than risk the fate of FTX, BlockFi seeks to improve its platform so that it will be able to withstand market shocks not only arising from any internal problems but also from contagion risk.

Meanwhile, Binance two days ago tweeted about not buying FTX, which is effectively being left to its own demise:

“As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer fund and alleged US agency investigations, we have decided that we will not pursue the potential acquisituin of FTX.com.”

Summing up, FTX has been accused of having underfunded reserves. 

The allegations surfaced after CZ CEO of Binance had sold all the FTX tokens (FTT) in his possession and this had given rise to suspicions. 

It turned out that there was a preliminary agreement of understanding between Binance and FTX for the handover of the offending platform, but with the above tweet, nothing more will be done about it. 

This series of events led to an unprecedented collapse of the crypto market that led BlockFi to today’s decision regarding blocking withdrawals and other restrictions. 

BlockFi has chosen within its powers, as stipulated in the agreements each user signs when signing up, to freeze everything until the dust settles and its team has improved customer service, whereas others have opted for different solutions. 

Binance protects savers

Binance for example is aiming shortly to move to the proof of reserve or split reserve system. 

This move that may seem ameliorative when applied to an Exchange presents risks more to the detriment of the user than the platform, let me explain. 

The fractional reserve system is the one used by traditional banks for example in Italy, against a deposit or a loan, the institution sets aside a percentage to cope with the ordinary management of operations (withdrawals etc.) and this percentage must be liquid or immediately liquid, in Italy and to that in Europe now, the percentage is 1%. 

This system contrasts with the statutory system currently used by exchange platforms around the world i.e. against deposits there are voluntary provisions of the exchange which are often close to 100% or less as in the case of FTX. 

In essence, fractional reserve, while technically protecting exchange platforms from bankruptcy as a result of withdrawal runs, only protects account holders for 1% against percentages in some cases of 100% or lower that are currently set aside.