After FTX implosion, crypto lender BlockFi files for bankruptcy
What's the story
The aftermath of FTX's implosion is still being felt across the crypto world. BlockFi, a cryptocurrency lender, has now become the latest casualty of the events that brought FTX down. The lender has filed for bankruptcy in the US, citing "significant" exposure to FTX. FTX and its hedge fund sibling Alameda Research declared bankruptcy earlier this month.
Context
Why does this story matter?
Crypto lenders like BlockFi are the de facto banks of the crypto world. They went through a boom during the pandemic. However, unlike traditional lenders, they are not bound to hold capital or liquidity buffers. Although this was seen as an advantage, the FTX crash has proved otherwise. BlockFi's downfall is another example of how much we need some basic regulation in the industry.
Bankruptcy
BlockFi owes money to over 100,000 creditors
BlockFi has filed for bankruptcy in the US, seeking protection to restructure, settle its debts, and recover money for investors. The company suspended withdrawals earlier this month after the collapse of FTX. In its filing, the company said that it owes money to over 100,000 creditors. It believes that the Chapter 11 bankruptcy filing will help it develop a reorganization plan that helps all.
Deal
FTX and BlockFi signed an agreement earlier this year
Earlier this year, along with the rest of the crypto market, BlockFi was also reeling in the post-pandemic world. This is when FTX stepped in to help the firm. In July, they signed a deal that gave BlockFi $400 million in revolving credit from FTX. Under the agreement, FTX had the option to buy BlockFi for up to $240 million.
Exposure
BlockFi's exposure is from loans to Alameda
In its bankruptcy filing, BlockFi said that its substantial exposure to FTX created a liquidity crisis. However, it said, it isn't facing all the issues that FTX is facing. The firm attributed its liquidity crisis to exposure to FTX through loans to Alameda Research, a trading firm affiliated with FTX, and cryptocurrencies held in FTX that are now trapped there.
Assets & liabilities
BlockFi plans to layoff two-thirds of its employees
New Jersey-based BlockFi estimates its assets and liabilities to be between $1-$10 billion. It has already sold a portion of its assets to fund bankruptcy, and now has $256.5 million in cash. In the filing, it has listed FTX as its second-largest creditor. Ankura Trust is the largest creditor. In a different filing, BlockFi said that it will ax two-thirds of its 292 employees.