The impact of the FTX crash continues to spread, and Blockfi has become the latest encryption company to go bankrupt.
BlockFi, which has assets and liabilities of $1 billion to $10 billion and $256.9 million in cash to help support its business through bankruptcy, is estimated to have more than 100,000 creditors and owes more than $1 billion to its three largest creditors, according to bankruptcy filings.
It’s worth noting that BlockFi raised $500 million at a valuation of $4.75 billion a year ago, and had planned to go public in the next 18 months.
Industry people judge that in the context of the cryptocurrency market decline, more and more investment institutions and companies will be in trouble like Blockfi, “down the altar”.
The debt could reach $10 billion
BlockFi, a crypto lending platform founded in 2017, announced on its official website on Monday evening (Washington time) that BlockFi and its eight affiliates will seek comprehensive restructuring opportunities under Chapter 11 of the US Bankruptcy Code to maximize value for all customers and stakeholders.
In a statement, BlockFi said the action follows a “difficult but necessary decision” following the shocking FTX mine incident.
The company has estimated liabilities of $1 billion to $10 billion and has more than 100,000 creditors. The first creditor is $729 million from Ankura Trust Company, the trustee for which the Company runs its BlockFi interest account. The second and third largest creditors are FTX US, with $275m in unsecured claims, and the Securities and Exchange Commission, with $30m.
Under the February settlement, BlockFi was to pay the SEC a $50m fine in five installments, with the full amount to be paid over two years. The company has paid the first two installments, totaling $20 million, and still owes $30 million to the SEC.
In February, the SEC reached a $100 million settlement with the lending arm of BlockFi for making loans without registering them as securities and for failing to register as an investment company. The SEC also found that BlockFi made false and misleading statements about the level of risk in its loan portfolio and lending activities.
In early November, the California Department of Financial Protection and Innovation temporarily suspended BlockFi’s license to originate and broker loans for 30 days, pending an investigation.
Caught up in the FTX crash
In addition to being punished by the SEC, BlockFi’s woes have also been linked to the explosion of crypto investment firm 3AC Capital and crypto exchange FTX.
BlockFi said in July that Three Arrows, one of its biggest borrowers, had lost about $80m because of its failure.
According to leaked recordings of Morgan Creek Digital’s June 30 investor call, Morgan Creek is trying to quickly raise $250 million in cash to buy a majority stake in BlockFi in a proposed new round of financing that values BlockFi at less than $500 million. BlockFi raised money last year at a valuation of nearly $5 billion.
According to the recording, BlockFi lent Three Arrow Capital about $1 billion against two-thirds Bitcoin and one-third GBTC, with an excess collateral rate of 30%.
Earlier, BlockFi’s CEO confirmed on social media that it had liquidated an excess mortgage loan from a major customer. Three Arrow Capital is widely believed to have been liquidated.
As BlockFi struggled, it struck a deal with FTX in June in which the company agreed to provide a $400 million line of credit. BlockFi subsequently borrowed $275 million from FTX US, which became BlockFi’s second-largest creditor.
However, after the FTX mine crash in early November, BlockFi announced a freeze on customer withdrawals due to the impact.
BlockFi then announced that 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 on FTX exchanges, And the amount not drawn on BlockFi’s $250 million credit facility with FTX.US.
BlockFi’s intertwined financial relationships with FTX make the situation even more difficult. BlockFi said in its bankruptcy filing that as part of its restructuring efforts, the company is focused on recovering all of FTX’s debt to BlockFi as soon as possible.
According to the latest news, BlockFi has sent layoff warning letters to two thirds of its employees, and now the company and its subsidiaries have 292 employees and 82 distributors.
Watch him go up tall
According to its website, BlockFi was founded in New Jersey by Zac Prince and Flori Marquez, and has offices in New York and New Jersey, as well as Singapore, Poland and Argentina. As of last year, the platform claimed more than 450,000 retail customers.
Blockfi used to be one of the best known crypto lending platforms in the industry. Blockfi allows bitcoin holders to lend their tokens at interest without actually selling their holdings, a concept that means that customers who borrow cryptocurrencies are not subject to traditional credit checks, while the platform itself avoids some taxes on capital gains.
According to the BlockFi website, The company’s equity backers include Tiger Global, Jump Capital, Winklevoss Capital, Peter Thiel, Galaxy Digital, and Northwestern University alumni venture capital fund Purple Arch Ventures, Paradigm, Morgan Creek Digital and CMS Holdings.
According to The Block Research report, BlockFi generated nearly $100 million in revenue in 2020, 22 times its fiscal 2019 revenue, with a gross margin of nearly 30 percent.
Last July, BlockFi closed a $500 million Series E funding round at an estimated post-investment valuation of $4.75 billion, according to documents distributed to investors.
BlockFi also told investors that it plans to go public in 12 to 18 months amid increasing regulatory scrutiny of the cryptocurrency bank.
Watch the building collapse
BlockFi is not the first and won’t be the last encryption company to fall.
In July, two BlockFi competitors, Celsius Network and Voyager Digital, folded within a week of each other; Genesis Lending, another larger crypto lender that has suspended customer withdrawals, is facing similar financial woes,
In the eyes of Liu Changyong, director of the Blockchain Economy Research Center of Chongqing Technology and Business University, the cryptocurrency bull market from the end of 2020 is the rise of DeFi, which drives the large-scale centralized crypto credit expansion; After the current market into the bear market, DeFi’s financial bubble will be the first to be punctured.
“In a long bear market, centralised financial bubbles may not burst at the same time, but one after the other, with the efforts of all centres.” “Liu Changyong said.
“It will definitely affect venture capital investments in the cryptocurrency space in the short term.” Yanxi Gu, a researcher in the blockchain and crypto digital assets industry, told Metacomverses NEWS that investment institutions in the US have been checking their own exposure to FTX recently. After this event, investors will choose to invest in more pragmatic institutions.
Singapore’s Temasek wrote down its entire $275m investment in FTX as a result of its collapse.
But the writedown did little to dispel questions about Temasek, particularly about whether it had fulfilled its due diligence responsibilities. Temasek now explains on its website that it conducted multiple rounds of due diligence on FTX and that Temasek “inquired about the relationship, preferential treatment and separation between Alameda and FTX and received appropriate confirmation that it was contractually binding”.
Over the weekend, Ho Ching, Temasek’s former chief executive, wrote in a Facebook post: ‘It is a shame for us to lose money because of a poorly managed company with no mature supervision.’
