BlockFi's demise is unmistakably linked to the implosion of FTX, with the company confirming that work will continue to recover funds that remain tied up in the doomed exchange.
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BlockFi has announced that it is filing for bankruptcy — becoming the latest crypto firm to fall victim to a punishing bear market.
In a statement, the embattled crypto lender expressed hope that the Chapter 11 proceedings would "stabilize its business" and deliver maximum value for all clients.
BlockFi's demise is unmistakably linked to the implosion of FTX, with the company confirming that work will continue to recover funds that remain tied up in the doomed exchange.
But given the fact that FTX is now in bankruptcy proceedings of its own, BlockFi warned that the efforts to recoup capital from this trading platform could take some time.
This announcement evokes memories of when Voyager Digital tipped into bankruptcy earlier this year. It was owed in excess of $650 million after Three Arrows Capital defaulted on a loan.
BlockFi's financial advisor Mark Renzi insisted that the company's management team had took immediate action to protect clients and the company, adding:
"From inception, BlockFi has worked to positively shape the cryptocurrency industry and advance the sector. BlockFi looks forward to a transparent process that achieves the best outcome for all clients and other stakeholders."
A flurry of "first day motions" have been filed to ensure that BlockFi employees continue to be paid without disruption, alongside a "Key Employee Retention Plan" that incentivizes vital workers to remain on board.
While so-called KERPs are controversial because of how they involve generous sums of money being awarded to workers while creditors remain out of pocket, businesses argue they are crucial to ensure trained professionals continue to perform critical functions.
And despite all of this, BlockFi has vowed to "considerably reduce expenses" to ensure it's a leaner company going forward.
The statement went on to add that the company has $256.9 million in cash on hand "which is expected to provide sufficient liquidity to support certain operations during the restructuring process."
BlockFi and FTX's fates were entwined when Sam Bankman-Fried — who until very recently was positioning himself as a white knight of the crypto sector — swooped in to help the stricken company.
Although the $250 million line of credit given to FTX was initially welcomed as it allowed withdrawals to resume, they were once again suspended following the shocking collapse of one of the world's biggest exchanges.
BlockFi was among a number of lenders that wooed investors by promising healthy interest rates on Bitcoin and other cryptocurrencies saved with the platform.
These interest rates often far exceeded what was available through conventional bank accounts — but questions have since been raised about whether all of this was too good to be true.
Addressing customers directly on its blog, BlockFi said it 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."
And in a quote that will now be all too familiar to those affected by the collapse of Voyager and Celsius, the firm added:
"We apologize that communication with our clients has not been as frequent as you have come to expect from us. We look forward to transparency through our reorganization, and will work to keep clients and stakeholders informed as we make progress."
While BlockFi has denied that the majority of its assets are held within FTX, the company has conceded that it had "significant exposure" to the trading platform — including "obligations owed to us by Alameda, assets held at FTX.com, and undrawn amounts from our credit line with FTX.US."
"We were shocked by the news regarding FTX and Alameda. We, like the rest of the world, found out about this situation through Twitter. Given the lack of clarity on the status of FTX.com, FTX.US, and Alameda, we are not able to operate business as usual."
