Crypto lender BlockFi filed for bankruptcy on Monday, becoming the latest victim of the financial contagion triggered by the collapse of Sam Bankman-Fried’s empire.
BlockFi announced earlier this month that it had halted withdrawals, citing “significant exposure” to Bankman-Fried’s FTX exchange, as well as its sister hedge fund Alameda. FTX, Alameda and dozens of affiliates filed for bankruptcy on November 11.
“Since the hiatus, our team has explored all strategic options and alternatives available to us, and remained focused on our primary objective of doing the best we can for our customers,” the company said in a statement.
The private company, founded in 2017 by Zac Prince and Flori Marquez, provided loans to clients using crypto assets as collateral.
In its bankruptcy filing, BlockFi said it owed money to more than 100,000 creditors. The largest creditor listed is Ankura Trust, a company that represents creditors in crisis, which is owed $729 million. FTX, BlockFi’s second largest creditor, owes $275 million.
BlockFi has about $257 million in cash, and the company expects that to provide enough liquidity to sustain it during the restructuring. The company estimates it has between $1 billion and $10 billion in assets and liabilities, depending on the filing.
Part of this restructuring will include layoffs. It was not immediately clear how many employees would be laid off, but the company said it had “launched an internal plan to significantly reduce expenses, including labor costs.” A BlockFi representative did not immediately respond to requests for comment on staffing.
The New Jersey-based company was one of many to receive financial backing from Bankman-Fried over the summer as falling crypto prices threatened to bring down key players in the crypto ecosystem. digital assets. In July, BlockFi secured a financial lifeline of $400 million from FTX.
The fallout from FTX’s decline ripples through the entire crypto industry.
“BlockFi’s Chapter 11 restructuring underscores the significant asset contagion risks associated with the crypto ecosystem,” said Monsur Hussain, senior director at Fitch Ratings. “Restructuring processes can be notoriously long,” he added, noting that creditors involved in Mt. Gox — a bitcoin exchange that went bankrupt in 2014 — “are only getting closer to being paid eight years later failure of the operation”.
Shortly after the collapse of FTX, the lending arm of crypto brokerage Genesis suspended redemptions and new lending after an “abnormal” number of withdrawal requests that exceeded its current liquidity, citing market turmoil due to the FTX failed.
“In the crypto world, as soon as you see a company or company advertise ‘we’re temporarily halting withdrawals’ — yuck,” said Daniel Roberts, editor of crypto-focused news outlet Decrypt Media. “You put them on death watch now.”
One of Genesis’ partners, Gemini – the crypto company founded by Tyler and Cameron Winklevoss – quickly followed, warning customers that redemptions under its Earn program would be delayed. Gemini said at the time that it worked with Genesis to help customers redeem program funds, which allowed customers to earn interest on crypto holdings. No other Gemini products or services were affected, the company said.
FTX began to crumble in early November, when questions about its relationship with Alameda sent panic among investors. A wave of withdrawals plunged FTX into a liquidity crunch that eventually brought it to an end. Bankruptcy proceedings since then have uncovered staggering evidence of corporate mismanagement – a “complete failure of corporate controls,” according to FTX’s new CEO, eclipsing even that of Enron.
—Matt Egan of CNN Business contributed to this report.
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