Crypto lender BlockFi files for bankruptcy as FTX contagion spreads

BlockFi becomes the latest casualty of the FTX fallout as the embattled crypto lending startup finally filed for bankruptcy. Today, BlockFi filed Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the District of New Jersey following the collapse of crypto FTX.

The announcement comes two weeks after the distressed crypto lender said it was preparing for bankruptcy as FTX. BlockFi is the latest in a series of crypto companies caught in the financial entanglement with the now-bankrupt FTX.

According to the filing, BlockFi indicated that it had more than 100,000 creditors, with liabilities and assets ranging from $1 billion to $10 billion. The Jersey City, New Jersey-based startup had already frozen withdrawals of customer deposits and admitted that it has “significant exposure” to bankrupt exchange FTX. The company added it couldn’t operate business as usual given the uncertainty about FTX.

“We do have significant exposure to FTX and associated corporate entities that encompass obligations owed to us by Alameda, assets held at FTX.com, and undrawn amounts from our credit line with FTX.US,” BlockFi previously said.

In a blog post, BlockFi said the bankruptcy case will enable the company to stabilize its business and maximize value for all stakeholders.

“This action follows the shocking events surrounding FTX and associated corporate entities (“FTX”) and the difficult but necessary decision we made as a result to pause most activities on our platform,” the company said.

BlockFi also added, “Acting in the best interest of our clients is our top priority and continues to guide our path forward,” BlockFi said.

BlockFi and Voyager are two of the crypto companies that suffered heavy losses due to their exposure to crypto hedge fund Three Arrows Capital, which went bust last week after defaulting on loans from a number of firms in the industry.

BlockFi co-founder and COO Flori Marquez tweeted early this month that “All BlockFi products are fully operational. BlockFi is an independent business entity. We have a $400MM line of credit from FTX.US (not FTX.com) and will remain an independent entity until at least July 2023. We are processing all client withdrawals.”

Founded in 2017 by Zac Prince and Flori Marquez, BlockFi is a provider of cryptocurrency-focused financial products, including zero-fee trading and interest-bearing accounts. The company started lending in January 2018, the company offers the ability to leverage Bitcoin and Ether to obtain USD loans.

Before filing for bankruptcy, BlockFi operated in over 44 U.S. states and is backed by leading investors including Galaxy Digital Ventures LLC, ConsenSys Ventures, and SoFi. BlockFi is a secured non-bank lender that offers USD loans to crypto-asset owners who collateralize the loan with their crypto-assets. Our products bring additional liquidity to the blockchain asset sector and meet the needs of both individuals and institutions holding blockchain assets.