FTX Exchange has dragged down another cryptocurrency star in the wake of its shocking collapse – lender BlockFi, which had significant exposure to FTX, has now filed for Chapter 11 bankruptcy protection.
In a statement posted on its website after filing in a New Jersey court, BlockFi said: “This action follows the shocking events surrounding FTX and associated corporate entities and the difficult but necessary decision we made as a result to pause most activities on our platform.
“Since the pause, our team has explored every strategic option and alternative available to us, and has remained laser-focused on our primary objective of doing the best we can for our clients.
“These Chapter 11 cases will enable BlockFi to stabilise the business and provide BlockFi with the opportunity to consummate a reorganisation plan that maximises value for all stakeholders, including our valued clients.”
The crypto lender’s bankruptcy filing comes after two of its largest competitors, Celsius Network and Voyager Digital, filed for bankruptcy in July, citing extreme market conditions.
Crypto lenders are the de facto banks of the crypto world. They are not required to hold capital or liquidity buffers like traditional lenders. They boomed during the pandemic, as retail customers were dazzled by the double-digit rates in return for their cryptocurrency deposits.
“Although the debtors’ exposure to FTX is a major cause of this bankruptcy filing, the debtors do not face the myriad issues apparently facing FTX,” said the bankruptcy filing by Mark Renzi, managing director at Berkeley Research Group, the proposed financial advisor for BlockFi. “Quite the opposite.”
According to a Reuters report, BlockFi said the liquidity crisis was due to its exposure to FTX via loans to Alameda, a crypto trading firm affiliated with FTX, as well as cryptocurrencies held on FTX’s platform that became trapped there. BlockFi listed its assets and liabilities as being between $1 billion and $10 billion.
The company also sued a holding company for Sam Bankman-Fried, the FTX founder, seeking to recover shares in Robinhood Markets pledged as collateral three weeks ago.
Renzi said BlockFi had sold a portion of its crypto assets earlier in November to fund its bankruptcy. Those sales raised $238.6 million in cash, and BlockFi now has $256.5 million in cash on hand.
In the court filing, BlockFi listed FTX as its second-largest creditor, with $275 million owed on a loan extended earlier this year. It said it owes money to more than 100,000 creditors. The company also said in a separate filing it plans to lay off two-thirds of its 292 employees.
BlockFi had earlier paused withdrawals from its platform and Renzi said in the filing that it intends to seek authority to honor client withdrawal requests. The company did not disclose plans for how it might treat withdrawal requests from its other products, including interest-bearing accounts.
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