Crypto lender BlockFi is reportedly preparing for a potential bankruptcy.
BlockFi is planning to lay off some of its employees.
The lender had suspended withdrawals last week due to FTX’s liquidity issues.
Significant exposure to FTX was revealed earlier this week.
FTX had bailed out BlockFi in July with a $400 million credit line.
New Jersey based crypto lender BlockFi is reportedly set to become the latest casualty of the crypto contagion triggered by the bankruptcy of Sam Bankman-Fried’s crypto exchange FTX.
BlockFi preparing for a potential bankruptcy
According to a report published by The Wall Street Journal, BlockFi is planning to lay off some of its employees. The lender has been among the many firms operating in the crypto space who have had a difficult time dealing with the fallout of FTX’s bankruptcy. People familiar with the matter told WSJ that the crypto lender itself is now preparing to file for a potential bankruptcy.
The signs of trouble became evident when the crypto lender suspended withdrawals and limited activity on its platform on 11 November. The company cited lack of clarity on the status of FTX and Alameda Research for this move. This prompted an enforcement action by California’s Department of Financial Protection and Innovation (DFPI), who suspended BlockFi’s lending license in the state for 30 days and launched an investigation into the company’s compliance with state laws.
On 14 November, the crypto lender revealed “significant exposure” to FTX and associated corporate entities including Alameda Research.
While we will continue to work on recovering all obligations owed to BlockFi, we expect that the recovery of the obligations owed to us by FTX will be delayed as FTX works through the bankruptcy process.” the official website read.
Following Terra’s collapse in May which triggered this year’s infamous crypto contagion, a number of lenders and exchanges were drastically impacted. The insolvency of Three Arrows Capital left several firms struggling in its wake, including Voyager Digital, Celsius, and BlockFi.
The aftermath saw uncertainty surrounding the crypto lender’s operations and its future. On 21 June, CEO Zac Prince announced the signing of a $250 million term sheet with none other than Sam Bankman-Fried’s FTX, who would later be dubbed crypto’s white knight. This was followed by a $400 million credit line extended by FTX to Prince’s firm. Ironically, the firm that saved BlockFi has now become the very reason that threatens it’s existence.