On Monday, BlockFi filed for Chapter 11 bankruptcy, citing significant risks in FTX.
The cryptocurrency platform owes the US Securities and Exchange Commission $30 million in bankruptcy filings.
FTX, which once offered BlockFi a $400 million line of credit, eventually put the company out of business.
Cryptocurrency lender BlockFi filed for Chapter 11 bankruptcy on Monday after the disastrous collapse of FTX continued to shake the industry.
BlockFi has more than 100,000 creditors with liabilities and assets ranging from $1 billion to $10 billion, according to the bankruptcy filing, one of the largest being West Realm Shires, a company known publicly as FTX.US, which has $275 million at your disposal. . . Unsecured debt.
BlockFi noted significant risks from Sam Bankman-Freed's crypto empire, which filed for bankruptcy on November 11. The cryptocurrency exchange experienced a “bank run” as a Coindesk report showed that FTT FTX tokens account for the majority of Bankman-Fried accounts. The balance sheet of trading firm Frida Alameda Research.
Founded in 2017 by Flory Márquez and Zach Prince, BlockFi provides clients with income from token deposits. Last year, the company raised $350 million in Series D at a $3 billion valuation with major backers, including Bain Capital Ventures.
However, the company has had a rough year and its troubles didn't start this week. Bankruptcy filings speak of the volatility of the company.
In February, BlockFi agreed to pay the Securities and Exchange Commission (SEC) a $100 million fine for one of the company's revenue-generating products. The SEC is BlockFi's fourth largest creditor, and owes the agency $30 million.
How BlockFi ended up in bankruptcy court
Mark Renzi of Berkeley Research Group, one of the firm's financial advisors, said in a statement that "industry decline" in crypto has not benefited BlockFi. According to Messari, the Crypto market cap is down more than 66% from its all-time high in November 2021.
After several months of falling token prices, the markets fell even faster in May. The biggest names in crypto are starting to drop like flies.
The algorithmic stablecoin TerraUSD, which once had a market capitalization of around $14 billion, has collapsed, causing many underperforming companies to go under. Central crypto lender Celsius and digital asset brokerage Voyager also filed for bankruptcy.
“BlockFi did not have direct access to Celsius, Luna, Terra or Voyager, other than giving BlockFi International clients the ability to trade Luna on their retail platform,” Renzi said, adding that clients remain connected to the platform. company flow. In conditions of economic recession. .
BlockFi shed 20% of its workforce in June, citing a "dramatic change" in economic conditions, co-founder Prince said on Twitter.
The Terra fiasco dumped the now-defunct large leveraged hedge fund Three Arrows Capital, which held large positions in the algorithmic stablecoin and was also one of BlockFi's largest borrowers.
“These events, individually and collectively, undermined investor confidence in cryptocurrencies and led to a market purge as a large number of investors attempted to withdraw their money from all cryptocurrency investments. BlockFi was not immune,” Renzi said.
BlockFi is intertwined with FTX
When the lending company ran into financial trouble, BlockFi signed an agreement with FTX, which opened a $400 million revolving credit facility in July. "The apparent rescue of FTX did not last long," Renzi said.
“The adoption of FTX with its well-known brand has increased customers’ confidence in the reliability and security of the BlockFi platform,” he added. “Indeed, BlockFi has been running all summer of 2022, while many other markets and exchanges have gone bankrupt.”
Ironically, as soon as FTX's "death spiral" began, a liquidity crunch hit BlockFi, and the company suspended withdrawals from user accounts on its platform. Because of the loan agreement and the $355 million in digital assets held in FTX, BlockFi was at great risk. (The company also lent $671 million to Bankman-Fried's Alameda.)
"We want to make sure we can give people back as much of their value as possible," Josh Susberg, a partner at law firm Blockfy Kirkland & Ellis, said during a bankruptcy hearing on Tuesday. According to Sussberg, the company wants to bring the platform back online soon for “maximum customer recovery.”
Read the original article on Business Insider