On December 20, BlockFi issued a statement confirming a motion filed in respect to BlockFi wallet customers accessing funds.
The company is most recognized for its yield-bearing service, BlockFi Interest Accounts; nonetheless, a custodial crypto wallet was a crucial product inside the BlockFi ecosystem. BlockFi said that because the wallet was not susceptible to loan services, “it is our conviction that clients unambiguously control these assets.”
The wallet's terms of service (ToS) declare unequivocally that ownership of the cryptocurrency held therein remains the property of the individual, not BlockFi.
“The title to the cryptocurrency housed in your BlockFi Wallet shall remain with you at all times and shall not be transferred to BlockFi.”
The announcement comes just hours after a leaked email revealed that clients may soon be able to retrieve funds.
Deposited funds were transferred to the BlockFi wallet. Users might invest their digital assets in one of the company's yield-bearing services to earn up to 10% interest on stablecoins and other assets.
The wallet's terms of service also state that it is a “non-interest-bearing” account.
“Our BlockFi Wallet is a non-interest-bearing cryptocurrency account that lets you to store, transfer, and manage your bitcoin.”
BlockFi got into difficulty earlier in 2022 owing to liquidity issues. It reported retaining only 10% of customer funds in reserve, comparable to a fractional reserve bank. Furthermore, 50% of money were stated to be in “short-term” positions. However, due to the high-risk nature of crypto financing, BlockFi finally ran into liquidity problems, forcing it to declare bankruptcy.
It is unknown why client money that were clearly labeled as being wholly owned by its customers were placed into bankruptcy proceedings at this time. However, clause F of the Terms of Service grants BlockFi the ability to transfer clients' wallet funds in response to a court order. Such a clause is often reserved for circumstances involving bankruptcy or other financial issues involving clients rather than the custodian.
“Unless specifically advised by you, BlockFi shall not sell, transfer, loan, hypothecate, or otherwise alienate cryptocurrency held in your BlockFi Wallet, except as required by a valid court order or applicable legislation.”
The BlockFi Wallet, unlike non-custodial wallets, requires users to log in to the BlockFi program in order to access any digital assets held inside. Customers' access to the application was canceled after the corporation ceased withdrawals.
Customers were not given a private key, hence the account could not be imported into another wallet like MetaMask or Trust Wallet. Customers who did not want the duty of holding a seed phrase might use the wallet as a custodial crypto account.
The hearing has been scheduled for January 9 for US customers and January 13 for overseas customers.
More information is available on the BlockFi blog.