Crypto Lender BlockFi Files for Bankruptcy Following FTX's Implosion

Crypto Lender BlockFi Files for Bankruptcy Following FTX’s Implosion

29 November 2022

BlockFi, a major cryptocurrency lender, announced its bankruptcy filing in the wake of FTX’s dramatic implosion. The company had stopped withdrawal of funds just days earlier.

According to the company, it had filed for Chapter 11 bankruptcy protection, meaning the lender aims to reorganize and remain in business. BlockFi currently has around $257 million at its disposal, the company’s press release states. In a similar manner, BlockFi’s affiliates have also filed for bankruptcy.

BlockFi has revealed that it owes more than 100,000 creditors. The company’s assets and liabilities are estimated to be between $1 billion and $10 billion, according to the company’s management. A separate filing from the company revealed that about two-thirds of the company’s staff will be laid off.

Currently, BlockFi owes West Realm Shires Inc., the parent company of FTX US, $275 million under its revolving credit facility. In terms of the remaining 50 largest creditors, only a handful have been named publicly.

The lender’s biggest creditor is Ankura Trust Company, an organization that protects the interests of lenders under stressful circumstances. The debt owed by BlockFi stands at $729 million.

Tough Year for BlockFi

BlockFi, a cryptocurrency lending startup, has had a turbulent year. After liquidating a major client earlier in the year and requiring a line of credit from FTX to stay afloat, BlockFi recently announced that withdrawals were halted in the wake of ongoing uncertainty surrounding FTX. In an effort to protect its customers, BlockFi urged users against depositing funds into the company’s wallet or interest-bearing accounts.

There was a plan for the company to raise at a lower valuation of $1 billion in June 2022, following a $350 million raise at a $3 billion valuation in March 2021. The company then announced its intent for a public offering in 18 months, along with an intention to raise $500 million through a new round.

The company was, however, fined $100 million by SEC in February for breaking federal and state regulations after launching a high-interest cryptocurrency lending program. As a condition of the agreement, BlockFi was also required to register the BlockFi Yield service with the regulator.

In June, BlockFi announced a significant reduction in staff, with around one-fifth of its employees getting laid off. It occurred at a time when the overall crypto market experienced a sharp decline, with the market total cap falling from over $3 trillion to approximately $1 trillion by June.

After Terra’s stablecoin UST lost peg to the dollar, funds worth $40 billion were wiped out. A few months later, it became evident that Three Arrows Capital, or 3AC, had an overexposure to Terra.

3AC’s bankruptcy forced BlockFi’s CEO Zac Prince to announce the liquidation of one of his biggest clients without specifying if it was the collapsed crypto hedge fund. BlockFi’s exposure to 3AC was large, but it was able to stay in business thanks to a revolving line of credit from FTX. The exchange provided a $250 million loan to BlockFi, which later expanded to a $400 million line of credit that enabled FTX US to purchase the company.

However, FTX, a leading digital asset exchange, has gone bankrupt after concerns regarding its liquidity. This followed a CoinDesk report that revealed a substantial amount of FTX’s affiliate Alameda’s assets were made up of FTTs, FTX’s own tokens. In response to this news, Binance’s CEO Changpeng Zhao said his exchange would sell its entire FTT portfolio. Subsequently, FTX stopped withdrawials from its platform.

After that, BlockFi informed of the suspension of withdrawals due to confusion surrounding some FTX-deposited assets. The organization stated that it still owes FTX credit for those deposits.

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