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Crypto Lender BlockFi Declares Bankruptcy as FTX Fallout Spreads

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Nov 29, 20222 min read

Crypto Lender BlockFi Declares Bankruptcy as FTX Fallout Spreads

Days after halting withdrawals due to the lingering effects of exchange FTX's insolvency, crypto lender BlockFi filed for bankruptcy protection on Monday.

The business announced that it was seeking Chapter 11 bankruptcy protection, indicating that it wanted to restructure while carrying on with business in the meantime. BlockFi has around $257 million in cash in hand, claims a press release. A Bermuda-based affiliate is likewise submitting a similar form for liquidation.

BlockFi's executives estimated the company has more than 100,000 creditors. They marked off the ranges in the petition for the company. According to executives, the company's assets and liabilities ranging from $1 billion to $10 billion.

The Securities and Exchange Commission (SEC), which has a $30 million unsecured claim, and West Realm Shires Inc., the corporate name of FTX US, which has a $275 million unsecured claim, are the major debtors of the corporation. The majority of the other top 50 creditors' names were not disclosed.

Ankura Trust Company, which the lender appears to have hired in February and currently has a $730 million unsecured claim against BlockFi, is the company's biggest creditor.

As the overall cryptocurrency market fell in June, the company cut almost a fifth of its employees. Market capitalization, which is one metric of the market's overall value, decreased from over $3 trillion to $1 trillion at the end of June.

After Three Arrows Capital failed, BlockFi CEO Zac Prince stated that the company had to liquidate a significant client. However, he did not specify whether or not Three Arrows was the client. Shortly after, cryptocurrency exchange FTX provided the lender with a $250 million credit facility. This facility was later changed into a $400 million credit facility that also allowed FTX US to purchase the lender.

FTX itself, however, declared bankruptcy in the second week of November after several days of speculation surrounding its liquidity. An article that revealed a significant portion of FTX sibling firm Alameda's balance sheet was composed of an exchange token, FTT, produced by FTX, raised the issues. In response, Binance CEO Changpeng "CZ" Zhao announced he would liquidate his company's entire shares of FTT. Later, FTX halted withdrawals.

BlockFi declared it would stop withdrawals amid the confusion, claiming it had several assets deposited on FTX and was still owed some of the credit FTX had extended.

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