BlockFi, a cryptocurrency lender, has filed for Chapter 11 bankruptcy, becoming the latest industry casualty in the aftermath of the FTX spectacular collapse earlier this month.
What is happening: Following massive losses from 3Arrows, Luna, and now the FTX, BlockFi, a leading cryptocurrency lender filed for bankruptcy under American Bankruptcy laws. On November 10th that it was suspending withdrawals as a result of the FTX liquidity crisis caused by Three Arrows Capital's collapse earlier this year.
On Monday, BlockFi sued a holding company for Bankman-Fried, seeking to recover shares in Robinhood Markets Inc pledged as collateral three weeks before BlockFi and FTX declared bankruptcy.
FTX involvement: FTX, founded by Sam Bankman-Fried, declared bankruptcy in the United States earlier this month after traders withdrew $6 billion from the platform in three days and rival exchange Binance dropped a rescue deal.
BlockFi had approximately $80 million in losses when FTX intervened to save it from bankruptcy in July.
This transaction had two components: a $400 million revolving credit facility that is subordinate to all client funds, and an option to acquire BlockFi for a variable price of up to $240 million based on performance triggers.
What happened: CNBC reported at the time that the FTX transaction was worth more than $25 million. Known as the "JP Morgan of Crypto" by the mainstream media, Sam Bankman-Fried revealed that the main goal was to backstop companies and help bail out the industry rather than maximize profits.
BlockFi believed it was being rescued, but it had simply attached itself to another insolvent creditor. Many people believed FTX was in a strong liquidity position when the deal was announced in July, which was not the case.
The SEC is also listed as one of BlockFi’s top creditors, BlockFi was fined $100 million by the SEC in February for failing to properly register its crypto lending product.
BlockFi still owes FTX $275 million.
What next: BlockFi's bankruptcy filing comes after two of BlockFi's main competitors, Celsius Network and Voyager Digital, declared bankruptcy in July, citing extreme market conditions as the cause of their losses.
BlockFi's first bankruptcy hearing is scheduled to take place in December 2022.
Summary: Following a difficult month for crypto financers toppling down big players like FTX and Celsius Networks amongst others, BlockFi joins the leagues of the top players in their game falling down as they recently filed for bankruptcy.