Since the overnight fall of the FTX cryptocurrency exchange on November 11, the crypto space has been waiting to see what other dominoes will fall.
FTX and its sister company Alameda Research, the two heads of Sam Bankman-Fried's crypto empire, were centerpieces of the cryptocurrency industry. The two companies had played the saviors of crypto firms weakened by the collapse of sister cryptocurrencies Luna and UST last May.
This disaster triggered a credit crunch that caused crypto lenders Voyager Digital and Celsius Network to file for Chapter 11 bankruptcy. Hedge fund Three Arrows Capital was forced into liquidation.
Many other companies had been bailed out by FTX and Alameda Research. It is therefore quite logical that some of these companies were expected to find themselves in difficulty after the bankruptcy of the Bankman-Fried empire. The list of collateral victims therefore begins to appear with the bankruptcy filing on November 28 of the crypto lender BlockFi.
'Stabilize' the Business
The company and eight of its affiliates "commenced voluntary cases under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of New Jersey " to "stabilize its business and provide the company with the opportunity to consummate a comprehensive restructuring transaction that maximizes value for all clients and other stakeholders," BlockFi said in a press release.
As part of its restructuring efforts, the firm said it will focus on recovering "all obligations" owed to BlockFi by its counterparties, including FTX and associated corporate entities. But "due to the recent collapse of FTX and its ensuing bankruptcy process, which remains ongoing, the company expects that recoveries from FTX will be delayed," BlockFi warned.
BlockFi's bankruptcy was expected after the platform decided on November 14 to suspend withdrawals and other operations due to its exposure to FTX.
"We determined late last week that in the current environment we could no longer operate our business as usual," the company wrote to its clients on November 14. "Given that FTX and its affiliates are now in bankruptcy, the most prudent decision for us, in the interest of all clients, is to continue to pause many of our platform activities for now."
"At this time, withdrawals from BlockFi continue to be paused. We also continue to ask clients not to submit any deposits to BlockFi Wallet or Interest Accounts," the cryptocurrency lender said.
Withdrawals Remain Suspended
BlockFi maintains these measures, which will remain in place for an indefinite period.
"Platform activity continues to be paused at this time," the company said on November 28.
BlockFi has $256.9 million in cash on hand, "which is expected to provide sufficient liquidity to support certain operations during the restructuring process."
BlockFi signed a bailout deal with FTX US, the U.S. subsidiary of FTX.com last July. The deal included an option given to FTX to acquire BlockFi at a variable price based on performance, but the maximum price was $240 million.
The agreement also included a $400 million credit revolver facility. In the end, the transaction was valued at $680 million.
BlockFi, which promised to compete with traditional banks, was among the victims of the liquidity crisis caused by the collapse of sister tokens Luna and UST, which saw at least $55 billion disappear in May.
“With the collapse of FTX, the BlockFi management team and board of directors immediately took action to protect clients and the company,” said Mark Renzi of Berkeley Research Group, the company’s financial advisor. "From inception, BlockFi has worked to positively shape the cryptocurrency industry and advance the sector."
Renzi added that the company "looks forward to a transparent process that achieves the best outcome for all clients and other stakeholders.”
