The Business Times

Crypto lender BlockFi suspends withdrawals in FTX contagion

Published Fri, Nov 11, 2022 · 04:24 PM

THE crisis sparked by the collapse of Sam Bankman-Fried’s FTX crypto empire ensnared BlockFi, a troubled digital-asset lender once worth US$3 billion but which has now limited activity on its platform.

BlockFi on Twitter said it will pause client withdrawals, citing “a lack of clarity” over the status of onetime saviour FTX US as well as the uncertainty afflicting FTX.com and sister trading house Alameda Research.

The Jersey City, New Jersey-based company asked customers to refrain from depositing funds into their BlockFi wallets or interest accounts. In a second-quarter report, BlockFi said the platform’s total deployable clients assets amounted to US$3.9 billion.

The developments at BlockFi underscore growing concerns about contagion from the toppling of crypto exchange FTX and trading house Alameda Research. Digital-asset lenders like BlockFi and Celsius Network, which is in bankruptcy, had already been buffeted by the rout in virtual coins over 2022.

BlockFi was in the process of moving its assets to FTX for custody, according to a person familiar with the matter. The majority of BlockFi’s assets had not been moved yet, the person added, asking not to be identified due to the sensitive nature of the matter.

The crypto lender had given loans to Alameda Research, the person familiar said, without specifying an amount.

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The loans are over-collateralized with liquid assets – including Robinhood shares – but BlockFi is no longer certain about where the funding for its credit line with FTX US and the collateral for the Alameda loans came from, the person said, citing concerns that it could have originated with customer funds.

The US Securities and Exchange Commission and the Commodity Futures Trading Commission are looking into whether FTX.com mishandled customer funds. Bankman-Fried is also being investigated by the US Securities and Exchange Commission (SEC) for potential violations of securities rules.

FTX US earlier in the year offered BlockFi a major lifeline by providing a US$400 million revolving credit facility in an agreement that came with the option to purchase the company.

Originally valued at US$3 billion in March 2021, BlockFi sought to raise money at a reduced valuation of about US$1 billion in June. The firm also faced scrutiny from financial regulators over its interest account and paid US$100 million in penalties to the SEC.

BlockFi took an US$80 million hit from the bad debt of crypto hedge fund Three Arrows Capital, which imploded after the TerraUSD stablecoin wipeout in May.

Authorities in the Bahamas, where FTX.com is based, froze the assets of its local trading subsidiary and “related parties,” further signs that Bankman-Fried’s empire is teetering. BLOOMBERG

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