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Sources familiar with the matter said that BlockFi is struggling to continue operations amid FTX’s collapse and has also planned layoffs very soon.
As per the latest report by Wall Street Journal, crypto lending giant BlockFi is reportedly planning a filing for Chapter 11 bankruptcy protection. Citing people familiar with the matter, the publication reported that BlockFi is also planning to conduct layoffs.
Chapter 11 Bankruptcy Protection Filing after FTX Collapse
Even since the collapse of FTX last week, BlockFi has struggled to keep its operations running. Earlier this year, BlockFi has also signed a credit deal with FTX US with the right to be potentially acquired.
But on the day of the FTX exchange bankruptcy protection filing, BlockFi announced that it would halt all the deposits and withdrawals on the platform. If further noted:
“We request that clients not deposit to BlockFi wallet or interest accounts at this time. Our priority has been and will continue to be to protect our clients and their interests.”
In another development, California’s Department of Financial Protection and Innovation is investigating crypto lender BlockFi. Besides, they have also suspended BlockFi’s lending license which could last for at least 30 days.
During the crypto winter of 2022, BlockFi has seen its valuation tanking significantly. Last year in March 2021, BlockFi pegged a valuation of $3 billion. However, the company’s valuation dropped to $1 billion in June this year.
BlockFi also took a massive $80 million due to bad debt with Three Arrows Capital, which imploded following the collapse of Terra ecosystem in May. The recent contagion spread with the FTX collapse has also impacted the company significantly.
Additionally, BlockFi faces scrutiny from financial regulators over its interest accounts. The crypto lender also paid $100 million fine to the SEC recently.
BlockFi to Continue Pausing Withdrawals
In a blog post on Monday, November 14, BlockFi said that it would continue to pause withdrawals on its platform. The crypto lender noted:
“Given that FTX and its affiliates are now in bankruptcy, the most prudent decision for us, in the interest of all clients, is to continue to pause many of our platform activities for now”.
Furthermore, BlockFi dismissed the rumors that a majority of the BlockFi assets are custodied with FTX. It also added that the recovery obligations owed to us by FTX will be delayed. BlockFi also stated that its team is working to determine the best path forward.
The crypto lender said that it has the necessary liquidity to “explore all options”. They have been engaging with expert outside advisors. “Haynes and Boone continues to serve as our primary outside counsel, and BRG has been engaged as our financial advisor,” it added.