- BlockFi filed for Chapter 11 bankruptcy on Monday, citing heavy exposure to FTX.
- The crypto platform owes $30 million to the SEC, for bankruptcy filing.
- FTX, which once offered BlockFi a $400 million line of credit, ultimately bankrupted the company.
Crypto lender BlockFi archived filed for Chapter 11 bankruptcy protection on Monday in the wake of the catastrophic implosion of FTX, which continues to send ripples through the industry.
BlockFi has more than 100,000 creditors, with liabilities and assets ranging from $1 billion to $10 billion, according to its bankruptcy filing, and one of the largest is "West Realm Shires," the company known publicly as FTX.US, which has $275 million. unsecured claim.
BlockFi cited significant exposure to the crypto empire of Sam Bankman-Fried, which filed for bankruptcy on November 11. The crypto exchange experienced a โbank runโ, when Coindesk report revealed that FTX's FTT token made up a large part of the balance sheet of Bankman-Fried's quant trading firm, Alameda Research.
BlockFi, founded in 2017 by Flori Mรกrquez and Zac Prince, offers clients returns on token deposits. The company insured a $350 million Series D raise at a $3 billion valuation last year, with big-name backers like Bain Capital Ventures.
However, the company has had a rough year and its problems didn't start this week. Bankruptcy filings tell a story of the company's ups and downs.
In February, BlockFi agreed to pay the Securities and Exchange Commission (SEC) a $100 million fine for one of the company's performance products. The SEC is BlockFi's fourth-largest creditor, due to agency $30 million
How BlockFi Landed in Bankruptcy Court
The โindustry pullbackโ in crypto hasnโt done BlockFi any favors, Mark Renzi of Berkeley Research Group, one of the companyโs financial advisers, said in the filing. Crypto's market capitalization has declined by more than 66% since its record high in November 2021, according to Messer.
After token prices fell for months, the markets saw an even faster decline in May. The biggest names in Crypto started dropping like flies.
The algorithmic stablecoin TerraUSD, which once had a market capitalization of roughly $14 billion, has crashed, taking a host of struggling companies with it. Centralized crypto lender Celsius and digital asset brokerage Voyager have also filed for bankruptcy.
โBlockFi had no direct exposure to Celsius, Luna, Terra or Voyager, in addition to offering clients facing BlockFi International the ability to trade Luna on their retail trading platform,โ Renzi said, adding that clients were still flocking to the company platform in the midst of the recession. .
BlockFi cut 20% of its workforce in June, citing a "dramatic change" in economic conditions, co-founder Prince tweeted.
The Terra fiasco sank the now-defunct overleveraged hedge fund Three Arrows Capital, which had significant exposure to the algo stablecoin and was also one of BlockFi's largest borrowing clients.
โThese events, individually and collectively, have shaken investor confidence in cryptocurrency and sparked a market purge, with substantial numbers of investors seeking to withdraw their funds from any and all cryptocurrency investments. BlockFi was not immune.โ Renzi said.
BlockFi's tangle with FTX
When the lending firm was in financial difficulty, BlockFi signed an agreement with FTX that opened a $400 million revolving credit facility in July. FTX's apparent "rescue" was short-lived, Renzi said.
"FTX's support, with its highly visible brand, reinforced customers' confidence in the robustness and security of the BlockFi platform," he added. "And indeed, through the summer of 2022, BlockFi maintained operations while several other trading platforms and exchanges were forced to file for bankruptcy."
Ironically, once FTX's "death spiral" began, BlockFi's liquidity crisis ensued, and the company halted withdrawals from user accounts on its platform. Due to the loan agreement and $355 million in digital assets held at FTX, BlockFi had substantial exposure. (The firm previously loaned $671 million to Bankman-Fried's Alameda as well.)
โWe want to make sure that people get as much of their value back as quickly as possible,โ Josh Sussberg, a partner at BlockFi law firm Kirkland & Ellis, said in a statement. bankruptcy hearing on Tuesday. The company, according to Sussberg, wants to resume platform services soon to "maximize customer recoveries."
