Original source: BitpushNews
Original source: BitpushNews
On Monday, November 28 local time, BlockFi, an encrypted lending platform established in 2017, officially filed for Chapter 11 bankruptcy protection in the United States, becoming the latest encrypted company to go bankrupt in the shock wave of the FTX crash.
Bankruptcy documents show that BlockFi has assets and liabilities of between $1 billion and $10 billion, with $256.9 million in cash to help support its business through bankruptcy. The company estimates that it has more than 100,000 creditors and owes the three largest creditors more than $1 billion, the first is $729 million from Ankura Trust Company, which is the trustee for the company to run its BlockFi interest account, the second and third largest creditors are FTX US and the U.S. Securities and Exchange Commission (SEC), They have unsecured claims of $275 million and $30 million, respectively.
BlockFi entities filing for bankruptcy include BlockFi Inc., BlockFi Services, Inc., BlockFi International Ltd., and limited liability companies BlockFi Wallet, BlockFi Ventures, BlockFi Trading, BlockFi Lending, BlockFi Lending II, and BlockFi Investment Products.
Bitweet terminal data shows that after BlockFi submitted the document, the price of Bitcoin hovered around $16,200, a 24-hour drop of about 2%.
Former glory
Founded by Zac Prince and Flori Marquez in New Jersey, USA, BlockFi was once one of the most well-known crypto lending platforms, allowing customers to use cryptocurrencies as collateral. As of last year, the platform claimed to have more than 450,000 retail customers.
BlockFi's lending model is a very common practice in traditional financial investment banks. The company first allowed Bitcoin holders to lend tokens to enjoy interest without actually selling their holdings. This concept also means This means customers who borrow cryptocurrencies are not subject to traditional credit checks, and the platform itself avoids some of the taxes payable on capital gains.
In 2019, BlockFi launched an encrypted interest-bearing account, from which customers can earn non-fixed interest starting at 6.2%.
The firm has grown during the pandemic and has offices in New York, New Jersey, Singapore, Poland and Argentina.
As of April 23, 2021, BlockFi's crypto interest-bearing accounts have expanded to ten other cryptocurrencies. In August of the following year, BlockFi completed its E-round financing of US$500 million, and its post-investment valuation rose to US$3.8 billion. At the same time, its number of employees increased to 818.
Notable equity backers of the company include Tiger Global, Jump Capital, Winklevoss Capital, Peter Thiel, Galaxy Digital, Northwestern University alumni venture capital fund Purple Arch Ventures, Paradigm, Morgan Creek Digital, and CMS Holdings, according to BlockFi’s website.
regulatory entanglement
However, the inherent volatility of cryptocurrencies also means that margins on borrowed positions can be liquidated quickly, in extreme cases that would cause clients and BlockFi acting as a counterparty to lose significant amounts of money during a market sell-off.
Regulators have also been scrutinizing BlockFi. Bitwee previously reported that in February, the U.S. Securities and Exchange Commission (SEC) reached a $100 million settlement with the company’s lending arm for making loans without registering them as securities and failing to register as a security. investment company. The SEC also believes that BlockFi made false and misleading statements about the risk level of its loan portfolio and lending activities.
Earlier this month, the California Department of Financial Protection and Innovation temporarily suspended BlockFi's license to originate and broker loans for 30 days, pending an investigation.
The double impact of Three Arrows Capital and FTX bankruptcy
The market downturn, the collapse of Three Arrows Capital (3 AC), and the collapse of FTX made BlockFi's fortunes turn sharply.
3 AC was one of BlockFi's largest borrowers and caused it to lose about $80 million, the company said in July. The thunder of Three Arrows Capital, the regulatory fine of up to 100 million US dollars, and the continued market downturn made BlockFi difficult. In order to preserve its business, BlockFi reached an agreement with FTX in June. FTX agreed to provide the company with a credit line of 400 million US dollars. BlockFi appears to be a lifesaver.
Prince and Marquez said at the time: "In the end, we found a great partner, FTX US, who shares our commitment to customers."
BlockFi subsequently borrowed $275 million from a subsidiary of FTX, and this intertwined financial relationship meant that when FTX collapsed and it was revealed that it was secretly transferring client assets, BlockFi was also doomed.
In early November, BlockFi filed a loan request for its loan agreement with FTX, but it was not honored, and BlockFi froze customer withdrawals on November 10. Four days later, the company announced it had hired financial restructuring adviser Berkley Research Group, citing “significant exposure to FTX and related corporate entities,” including Alameda Research’s debt to BlockFi, assets held by FTX.com, and BlockFi’s holdings on FTX.com. The undrawn amount of the US $250 million line of credit.
Within days of FTX filing for bankruptcy protection, BlockFi had begun talks with restructuring professionals, according to people familiar with the matter.
Monsur Husain, senior director at Fitch Ratings, commented that BlockFi’s reorganization highlights “significant” risks creeping within the “encrypted ecosystem” and potential flaws in the company’s management of risk.
While the outcome was expected by the crypto community, BlockFi's bankruptcy is still a blow to the industry. Earlier in July, two of BlockFi's competitors, Celsius Network and Voyager Digital, collapsed within a week. Genesis Lending, another larger crypto lending company, suspended customer withdrawals two weeks ago and is currently facing similar financial difficulties. Who will be a falling domino?
