BlockFi released a statement on Dec. 20 confirming a motion filed in relation to BlockFi wallet users accessing funds.
The company is most well known for its yield-bearing service, BlockFi Interest Accounts; however, a core product within the BlockFi ecosystem was a custodial crypto wallet. The wallet was not subject to lending services; thus, BlockFi argued that ” it is our belief that clients unambiguously own these assets.”
The terms of service (ToS) for the wallet clearly state that the ownership of the cryptocurrency stored therein remains the property of the individual, not BlockFi.
“The title to the cryptocurrency held in your BlockFi Wallet shall at all times remain with you and shall not transfer to BlockFi.”
The statement comes hours after news broke through a leaked email that customers may soon be able to access funds.
Funds deposited into BlockFi were sent to the BlockFi wallet. Users could move their digital assets into one of its yield-bearing services to gain up to 10% interest on stablecoins and other assets.
The ToS for the wallet product also confirms that it is a “non-interest-bearing” account.
“Our BlockFi Wallet is a non-interest-bearing crypto account that allows you to hold, transfer and manage your cryptocurrency held in your account.”
BlockFi ran into trouble due to liquidity issues earlier in 2022. It had reported holding just 10% of customer funds in reserve, acting similarly to a fractional reserve bank. In addition, 50% of funds were reported to have been in “short-term” positions. However, due to the high-risk nature of crypto lending, BlockFi eventually experienced liquidity issues that forced it into bankruptcy.
It is unclear at this time why customer funds that were clearly designated as being solely owned by its customers were entered into bankruptcy proceedings. However, clause F in the ToS does give BlockFi the right to transfer clients’ wallet funds upon court request. Such a clause is usually reserved for situations of bankruptcy or other financial matters related to customers as opposed to the custodian itself.
“Except as required by a valid court order or applicable law, BlockFi shall not sell, transfer, loan, hypothecate or otherwise alienate cryptocurrency held in your BlockFi Wallet unless specifically instructed by you.”
Unlike non-custodial wallets, the BlockFi Wallet required users to log in to the BlockFi application in order to access any digital assets stored inside. However, after the company paused withdrawals, access to the application was revoked for customers.
There was no private key made available to customers meaning that the account could not be imported into another wallet such as MetaMask or Trust Wallet. The wallet acted as a custodial crypto account for customers who did not want the responsibility of storing a seed phrase.
A date for the hearing is set for Jan. 9 for U.S. customers and Jan. 13 for international customers.
Further information can be found on the BlockFi blog.