The ripple effect of the FTX collapse has no doubt negatively impacted the crypto industry as crypto lender BlockFi has recently filed for bankruptcy.
The company on Monday filed for voluntary cases under chapter 11 of the U.S. bankruptcy code in the United States Bankruptcy Court, New Jersey district.
The crypto exchange platform disclosed that its reason for filing for bankruptcy was necessitated as it seeks to stabilize its business and provide the Company with the opportunity to consummate a comprehensive restructuring transaction that maximizes value for all clients and stakeholders.
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BlockFi wrote on Twitter,
“Maximizing value for all clients and other stakeholders is our priority. This process will help BlockFi to stabilize our business and provide us with the opportunity to work towards consummating a comprehensive restructuring transaction to maximize value.
“As part of our restructuring efforts, we will focus on recovering all obligations owed to BlockFi by counterparties, including FTX.
“Acting in the best interest of our clients is our top focus and continues to guide our path forward. Chapter 11 is a transparent process and we will continue to communicate with our clients to ensure they hear directly from us”.
Today, BlockFi filed voluntary cases under Chapter 11 of the U.S. Bankruptcy Code.https://t.co/adaAx6me4r
— BlockFi (@BlockFi) November 28, 2022
The company’s financial advisor Mark Renzi disclosed that following FTX’s collapse, the management team swiftly swung into action to prevent its clients and the company from incurring losses.
BlockFi however clarified that the majority of its assets were not kept at FTX, but acknowledged that it has significant exposure to the crypto exchange platform.
According to its bankruptcy findings, BlockFi subsequently borrowed $275 million from a subsidiary of FTX. This financial entanglement meant that when FTX filed for bankruptcy amid revelations of corporate missteps and suspicious management, BlockFi began to struggle too.
Also, a few days after FTX’s collapse, BlockFi notified its customers that they would not be able to withdraw their deposits due to its “significant exposure” to FTX, including additional funds the company had hoped to draw on under the agreement and other assets held on the FTX platform.
A Bloomberg report disclosed that BlockFi had to sell $239 million of its cryptocurrency to cater for its bankruptcy expenses while notifying about 250 of its workers of a possible layoff, after employing about 850 people last year.
In its bankruptcy filings, BlockFi still owes the Securities and Exchange Commission (SEC) $30 million, making the nation’s top securities cop its fourth-largest creditor.
FTX collapse has no doubt posed a major challenge to many of the industry’s stakeholders, as it operated at the center of the crypto ecosystem.
Many prominent institutional venture funds, and market makers were also not spared, as they had direct exposure to FTX based on their respective public statements.
Other than direct exposure to having assets on FTX, other centralized finance (CeFi) companies are currently experiencing a liquidity crunch. Crypto lenders such as BlockFi, SALT and Genesis, SALT, have since halted withdrawals, citing liquidity issues following FTX’s collapse.
Few Analysts disclose that the long-term effects of FTX collapse will be unfriendly, noting that the fallout will affect many early-stage projects backed by FTX and Alameda’s venture arms, as well as increasing regulatory pressure and also denting investors’ confidence.