BlockFi Is Examining Bankruptcy As A Reaction To FTX’s Fallout
A corporate insider told Decrypt that the troubled cryptocurrency lender halted client withdrawals last week and is now considering a Chapter 11 case.
A corporate insider told Decrypt on Tuesday that crypto lending platform BlockFi is contemplating applying for Chapter 11 bankruptcy protection and planning for job losses in the aftermath of the collapse of closely-related crypto exchange FTX. The prospective bankruptcy filing was originally reported by the Wall Street Journal.
BlockFi has spoken with Binance regarding potential financial assistance as part of its study of future steps.
BlockFi suspended client withdrawals on Thursday night and repeated on Monday that it will continue to freeze withdrawals and restrict activity, noting that its “significant exposure to FTX” hindered its ability to function normally.
“The rumours that a majority of BlockFi assets are custodied at FTX are false,” BlockFi wrote to customers on Monday. “That said, we do have significant exposure to FTX and associated corporate entities that encompasses obligations owed to us by Alameda, assets held at FTX.com, and undrawn amounts from our credit line with FTX US.”
FTX US extended a $400 million line of credit to BlockFi throughout the summer. BlockFi requested the credit line after experiencing its own difficulties when the crypto market collapsed in the wake of the failure of Terra’s LUNA and UST.
Although layoffs were not specifically addressed, the source claims that BlockFi workers were informed of the severity of the present position at the firm on Monday at an all-hands meeting. In July, the firm undertook voluntary buyouts, yet it still employs over 300 full-time workers. Decrypt has learnt that Blockfi has sufficient liquidity to have discreetly began processing client withdrawals placed before the Thursday night freeze.
Toward the bottom of Monday’s email to customers, the company mentioned that this has “engaged expert outside advisors that are helping us navigate BlockFi’s next steps. Haynes and Boone continues to serve as our primary outside counsel, and BRG has been engaged as our financial advisor.” Berkeley Research Group (BRG) is a restructuring firm often retained for bankruptcy proceedings.
BlockFi is one among the many victims of FTX’s sudden collapse last week.
On Sunday, Binance’s CEO Changpeng Zhao tweeted that the exchange has begun to liquidate its FTT, the token of FTX. (Binance had a substantial supply of FTT after the sale of a 2019-held position in FTX) After more than $5 billion in client withdrawals on Sunday, FTX had a liquidity bottleneck. On Tuesday, CEO Sam Bakman-Fried said that rival exchange Binance had signed a non-binding letter of intent to acquire FTX. Wednesday, however, Binance withdrew, stating that FTX was “beyond our control or capacity to assist.”
FTX filed for Chapter 11 bankruptcy protection on Friday, and Bankman-Fried resigned as CEO. FTX is accused of misusing consumer cash to cover Alameda’s billions of dollars in trading losses.
