InfoNesia.xyz – Crypto lending platform BlockFi is considering filing for Chapter 11 bankruptcy protection and preparing for job cuts in the wake of the collapse of closely-linked crypto exchange FTX, a source at the company told Decrypt on Tuesday. The Wall Street Journal first reported on the potential bankruptcy filing.
In its exploration of next steps, BlockFi has also had talks with Binance about possible financial help.
BlockFi paused customer withdrawals last Thursday night, and on Monday reaffirmed that it would keep withdrawals paused and limit activity, acknowledging that it had “significant exposure to FTX” that limited its ability to operate as usual.
“The rumors that a majority of BlockFi assets are custodied at FTX are false,” BlockFi wrote to customers on Monday. “That said, we do have significant exposure to FTX and associated corporate entities that encompasses obligations owed to us by Alameda, assets held at FTX.com, and undrawn amounts from our credit line with FTX US.”
BlockFi accepted a $400 million line of credit from FTX US over the summer. BlockFi sought the line of credit after facing its own struggles as the crypto market tanked following the demise of Terra’s LUNA and UST.
In an all-hands meeting on Monday, BlockFi employees were warned of the seriousness of the company’s current situation, though layoffs were not explicitly mentioned, the source said. The company conducted voluntary buyouts in July but still has more than 300 full-time employees. Blockfi still has enough liquidity to have quietly begun processing customer withdrawals made before the freeze on Thursday night, Decrypt has learned.
Toward the bottom of Monday’s email to customers, the company mentioned that it has “engaged expert outside advisors that are helping us navigate BlockFi’s next steps. Haynes and Boone continues to serve as our primary outside counsel, and BRG has been engaged as our financial advisor.” Berkeley Research Group (BRG) is a restructuring firm often retained for bankruptcy proceedings.
BlockFi is just one of many victims of FTX’s unexpected unraveling last week.
It started on Sunday when Binance CEO Changpeng Zhao tweeted that Binance had begun to liquidate its stash of FTT, the token of FTX. (Binance had a large supply of FTT after it cashed out a stake in FTX it held since 2019.) After seeing customer withdrawals of more than $5 billion on Sunday, FTX suffered a liquidity crunch and CEO Sam Bakman-Fried declared on Tuesday that rival exchange Binance had signed a non-binding letter of intent to purchase FTX. But Binance backed out on Wednesday, saying FTX was “beyond our control or ability to help.”