BlockFi is currently preparing to lay off employees and file for Chapter 11 bankruptcy as the fallout from FTX’s rapid collapse continues. Last week, it paused withdrawals and limited activity on its platform.
BlockFi admitted “significant exposure” to FTX. However, it denied rumors that the majority of its digital asset holdings were on FTX.
A considerable amount of that exposure likely involved a deal in which FTX agreed to provide a revolving line of credit for BlockFi in June 2022. The deal also included an option to acquire BlockFi. The acquisition could have been worth up to $240 million depending on whether BlockFi could meet what CEO Zak Prince called “performance triggers.” The triggers included SEC approval of a lending product before a certain date — which BlockFi would have had very little control over once it submitted the paperwork.
Prince had previously denied rumors that FTX was in talks to acquire BlockFi for as little as $25 million.
Even in June, BlockFi had dropped a long way since March 2021, when it raised $350 million in a Series D funding round with a valuation of $3 billion.
The timing of FTX’s meltdown was atrocious for BlockFi. As recently as November 7, it seemed ready to finally launch its fully regulated crypto yield product for accredited investors in the United States. It had previously settled with the SEC to pay $100 million in fines and pursue compliance with the Investment Company Act of 1940. It also said it would register its lending product under the Securities Act of 1933.
With the Chapter 11 bankruptcy, BlockFi could survive with restructured debt and reduced operations as it tries to rebuild. However, it may reasonably hesitate to take another unfavorable bailout deal after dealing with the fallout from FTX’s bankruptcy.