BlockFi Bankruptcy: Another Domino Falls

Crypto lender BlockFi filed for bankruptcy in New Jersey, where the company is based, following the collapse of FTX. The company says the bankruptcy filing is due to “asset contagion” related to the implosion of Sam “SBF” Bankman-Fried’s DeFi exchange. BlockFi had lent $275 million to FTX, which the company says is a “major cause” for restructuring under Chapter 11. Here’s everything you need to know about the BlockFi bankruptcy filing.

BlockFi sues FTX amid bankruptcy filing.

According to Reuters, BlockFi filed for bankruptcy as a domino effect of the collapse of FTX. The failure of the exchange created a liquidity shortage. However, Mark Renzi, the managing director at Berkeley Research Group, says BlockFi is in far better shape than FTX. “Although the debtors’ exposure to FTX is a major cause of this bankruptcy filing,” said Renzi. “[T]he debtors do not face the myriad issues apparently facing FTX.”

Additionally, BlockFi sued one of SBF’s holding companies, Emergent Fidelity Technologies, to recover at least some capital. The holding company held shares in Robinhood Markets Inc. offered as collateral to BlockFi earlier in the month. Robinhood is an asset-trading application that stirred up controversy during the GameStop short squeeze in January 2021.

Cointelegraph reports that Emergent Fidelity signed an agreement on November 9 to adhere to a payment schedule with BlockFi. However, the now-bankrupt company alleges SBF’s holding company failed to make the agreed-upon payments. Bankman-Fried purchased a 7.6% stake in Robinhood, $648 million in shares, through Emergent Fidelity.

FTX lent BlockFi $400 million after the collapse of Three Arrows Capital.

During the early days of crypto winter, BlockFi fell into liquidity troubles after the Three Arrows Capital (3AC) collapse. Bankman-Fried swooped in to make the save with a $400 revolving credit facility from FTX. 3AC defaulted on a $670 million loan from Voyager Digital, which filed for bankruptcy shortly afterward. Notably, Bankman-Fried’s Alameda Research also lent Voyager $500 million in an attempt to bail them out.

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