In the first major collateral casualty of the collapse of FTX, BlockFi announced via a tweet in the early hours of Friday (Nov. 11) morning that it is pausing client withdrawals and limiting platform activity.
Writing that “we are shocked and dismayed by the news regarding FTX and Alameda,” the firm said a lack of clarity on the status of Sam Bankman-Fried’s fallen crypto empire meant it was “not able to operate business as usual.”
BlockFi and FTX US announced in July that the two companies had agreed to a deal for FTX US to provide BlockFi a $400 million credit facility, with the option for FTX US to buy the smaller platform.
On top of offering trading services, BlockFi also acts as a crypto lender. As was reported by several media outlets on Friday, BlockFi was in the process of moving its assets to FTX for custody, however, the majority of the assets had not been moved yet.
BlockFi has been in troubled water since it took a large hit from the failure of crypto hedge fund Three Arrows Capital. After the fund failed to meet its obligations on an overcollateralized margin loan in June, BlockFi made the decision to liquidate its collateral.
Read further: U.S. Regulators Probe Failure Of Three Arrows Capital
As the spillover from FTX’s ongoing crisis continues, the wider crypto industry is due some serious soul-searching.
Following the trio of high-profile bankruptcies that crashed the market in the summer, the latest drama indicates that something is clearly wrong with the current centralized exchange model. With two major players now halting withdrawals, investors using other platforms will likely look to move their assets to private wallets, risking further runs and collapses.
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