BlockFi, a digital asset lender that received a bailout from FTX earlier this year and which has significant exposure to the exchange and its associated entities like Alameda Research and FTX.US, is planning to lay off a portion of its workforce and is indicating it may explore a bankruptcy filing itself.
That’s according to a Tuesday (Nov. 15) report by The Wall Street Journal (WSJ). A BlockFi spokesperson did not immediately return a request for comment.
FTX’s well-publicized insolvency is proving to be one of the most damaging events in recent crypto history.
Last week, BlockFi paused withdrawals and limited platform activity in response to the uncertainty hovering around FTX, which in just one week went from being one of the biggest cryptocurrency exchanges to almost zero. FTX and its related companies filed for bankruptcy protection last Friday (11/11) without disclosing which other crypto firms may have holdings tied up on its exchange. Now that the dust has somewhat settled, resuming business as usual doesn’t appear to be an option for BlockFi.
BlockFi suffered a solvency event this past summer after a plunge in crypto prices shook the digital asset market. The platform needed to be rescued, and it was FTX that stepped in with a $400 million revolving credit facility. The deal also gave FTX an option to purchase BlockFi for $240 million, depending on certain performance triggers. BlockFi reportedly drew upon most the credit facility to right its balance sheet, and also extended millions of dollars in loans collateralized by FTX’s now nearly worthless FTT tokens.
The high degree of financial entanglement between BlockFi and FTX may prove to be fatal to the former, as BlockFi stakeholders expect the recovery of the obligations owed to them by FTX will be delayed as FTX works through its own bankruptcy process. Withdrawals from BlockFi continue to be paused, as do all platform activities, and the company is asking users not to submit any new deposits to their BlockFi wallet or interest accounts.
It remains to be seen what this marketplace fallout holds for future cryptocurrency regulations.
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