On November 29, the Yonhap news agency Yuan Cosmos NEWS (reporter Xu Cihao), the impact of the FTX crash continued to spread, and Blockfi became the latest encryption company to go bankrupt as a result.
According to the bankruptcy documents, BlockFi's assets and liabilities range from $1 billion to $10 billion, with $256.9 million in cash to help support its business through bankruptcy. It is estimated that the company has more than 100000 creditors and owes more than $1 billion to the three largest creditors.
It is worth noting that BlockFi only completed the financing of $500 million a year ago, with an estimated value of $4.75 billion. It was originally planned to go public in the next year and a half.
Industry insiders judge that in the context of the decline of cryptocurrency market, more and more investment institutions and companies will be in trouble like Blockfi, "falling off the altar".
Liabilities may reach US $10 billion
On the evening of the 28th Beijing time, BlockFi, the crypto lending platform established in 2017, announced on its official website that BlockFi and its eight subsidiaries will seek opportunities for comprehensive restructuring in accordance with Chapter 11 of the U.S. Bankruptcy Law, to maximize the value of all customers and stakeholders.
BlockFi said in the announcement that the action took place after the shocking FTX thunderstorm, and the company made a difficult but necessary decision.
The company estimates its liabilities to be between $1 billion and $10 billion, with more than 100000 creditors. The first creditor is the $729 million of Ankura Trust Company, which is the trustee for the company to run its BlockFi interest account. The second and third largest creditors are FTX US and the Securities and Exchange Commission (SEC), which have unsecured claims of US $275 million and US $30 million respectively.
According to the settlement agreement in February this year, BlockFi should pay the US SEC a fine of 50 million dollars in five installments, and pay the full fine within two years. The company has paid the first two installments, totaling $20 million, and still owes $30 million to SEC.
In February this year, the US SEC and BlockFi's lending department reached a settlement agreement of US $100 million, because BlockFi provided loans without registering them as securities and was not registered as an investment company. The SEC also found that BlockFi made false and misleading statements about the risk level of its loan portfolio and loan activities.
At the beginning of November, the California Department of Financial Protection and Innovation suspended the BlockFi issuance and agency loan license for 30 days, pending investigation.
Involved in FTX crash
In addition to being punished by the US SEC, BlockFi's predicament was also affected by the thunder of the crypto investment institution Three Arrow Capital (3AC) and the crypto exchange FTX.
BlockFi said in July this year that Sanjian Capital was one of BlockFi's largest borrowers, and the bankruptcy of the latter caused the company to lose about 80 million dollars.
According to the recording leaked from Morgan Creek Digital's investor conference call on June 30 this year, Morgan Creek is trying to quickly raise $250 million in cash to buy most of the equity of BlockFi. In the proposed new round of financing, the valuation of BlockFi is less than $500 million, and BlockFi completed financing with a valuation of nearly $5 billion last year.
According to the recording, BlockFi has provided about $1 billion of loans to Sanjian Capital, with two thirds of Bitcoin and one third of GBTC as collateral, and the excess mortgage rate is 30%.
Previously, the CEO of BlockFi confirmed on social media that the excessive mortgage loan of a major customer had been liquidated. It is generally believed that Sanjian Capital is liquidated.
When BlockFi was struggling, it reached an agreement with FTX in June this year, and FTX agreed to provide a credit line of $400 million. BlockFi subsequently borrowed $275 million from FTX US, which also became the second largest creditor of BlockFi.
However, after the FTX crash in early November, BlockFi announced to freeze customer withdrawals.
Subsequently, BlockFi announced to hire Berkley Research Group, a financial restructuring consultant, for the reason of "significant exposure to FTX and related corporate entities", including Alameda Research's debt owed to BlockFi, assets held in FTX exchanges, and BlockFi's FTX Undrawn amount in US $250 million credit line.
The financial relationship between BlockFi and FTX makes the situation more difficult. BlockFi said in the bankruptcy application document that as part of the restructuring, the company will focus on recovering all the debts owed by FTX to BlockFi as soon as possible.
The latest news shows that BlockFi has delivered a letter of warning to two-thirds of its employees. At present, the company and its subsidiaries have 292 employees and 82 dealers.
Seeing him rise high
According to the official website, BlockFi was founded by Zac Prince and Flori Marquez in New Jersey, with offices in New York, New Jersey, Singapore, Poland and Argentina. As of last year, the platform claimed to have more than 450000 retail customers.
Blockfi was once one of the most famous encryption lending platforms in the industry. Blockfi allows Bitcoin holders to lend tokens to enjoy interest without actually selling their assets. This concept means that customers who borrow cryptocurrency are not subject to traditional credit checks, and the platform itself can avoid some taxes payable on capital gains.
According to the BlockFi official website, the company's equity supporters include Tiger Global, Jump Capital, Winklevoss Capital, Peter Thiel, Galaxy Digital, Northwestern University alumni venture capital funds Purple Arch Ventures, Paradigm, Morgan Creek Digital and CMS Holdings.
According to the report of The Block Research, BlockFi generated nearly $100 million in revenue in 2020, 22 times that of fiscal year 2019, and its gross margin was nearly 30%.
According to the documents distributed by BlockFi to investors in July last year, the company completed the round E financing of 500 million dollars that year, and is expected to reach a post investment valuation of 4.75 billion dollars.
At the same time, BlockFi told investors that in the increasingly strict regulatory review of the cryptocurrency bank by regulators, it plans to go public in 12-18 months.
The building collapsed
BlockFi is not the first and will not be the last encryption company to fall.
In July this year, BlockFi's two competitors, Celsius Network and Voyager Digital, went bankrupt one after another within a week; Genesis Lending, another large-scale crypto lending company, has suspended customer withdrawals and is facing similar financial difficulties,
In the view of Liu Changyong, director of the Blockchain Economy Research Center of Chongqing Technology and Business University, the bull market of cryptocurrency that began at the end of 2020 was the rise of DeFi, which led to large-scale centralized crypto credit expansion; After the current market enters a bear market, DeFi's financial bubble will be the first to be punctured.
"In the long bear market, the centralized financial bubble may not burst at the same time with the efforts of each center, but it will burst one by one," Liu Changyong said.
"It will definitely affect venture capital's investment in cryptocurrency in the short term." Gu Yanxi, a researcher in the blockchain and crypto digital asset industry, told Yuan Cosmos NEWS that recently, American investment institutions are examining how much risk exposure they have to FTX. After this event, investment institutions will choose more pragmatic institutions for investment.
Due to the collapse of FTX, Singapore Temasek wrote down its total investment in FTX of 275 million dollars.
However, the asset write down did not dispel the external heckling on Temasek, especially on whether it has fulfilled its due diligence responsibilities. Temasek currently explains this on its website that the company has conducted several rounds of due diligence on FTX, and Temasek "inquired about the relationship, preferential treatment and separation between Alameda and FTX, and received appropriate confirmation with contractual binding force."
At the weekend, He Jing, the former CEO of Temasek, posted a post on Facebook saying: "It is our shame that a company without mature supervision and poor management has caused losses.".
