BlockFi Files for Bankruptcy After Struggling to Stay Afloat in the Wake of FTX’s Implosion

blockfi ftx bankruptcy

TL:DR

•BlockFi reveals that FTX and Alameda Research owe it more than $1 billion—$671 million on a now-defaulted loan to Alameda and $355 million in funds frozen on the company’s crypto exchange.

• BlockFi filed for Chapter 11 bankruptcy protection after weeks of speculation that it would no longer be able to operate in the wake of FTX filing for bankruptcy.

• BlockFi had a lot of exposure to FTX after it received a $400 million line of credit in July—a deal that the company’s legal team said was approved by 89% of its shareholders.

• It’s not the first time it’s been revealed that FTX or its sister company, Alameda Research, owed money to the companies with which they inked so-called bailout deals.

• Joshua Sussberg, an attorney and partner at Kirkland & Ellis law firm, said during the hearing: “The Luna collapse really was the start of everything.” A slide deck he was presenting showed subsequent defaults or insolvencies of crypto firms following Terra’s algorithmic stablecoin collapse.

Kirkland & Ellis has been a mainstay in high-profile bankruptcy cases – In 2020

BlockFi Files For Chapter 11

Crypto startup BlockFi has filed for Chapter 11 bankruptcy protection after weeks of speculation that it would be unable to continue operating in the wake of another crypto startup, FTX, filing for bankruptcy.

FTX and Alameda Research owe BlockFi more than $1 billion combined—$671 million on a now-defaulted loan to Alameda and $355 million in funds frozen on the company’s crypto exchange. BlockFi had a lot of exposure to FTX after it received a $400 million line of credit in July—a deal that the company’s legal team said was approved by 89% of its shareholders.

“FTX Contagion”

It’s not the first time it’s been revealed that FTX or its sister company, Alameda Research, owed money to the companies with which they inked so-called bailout deals. Kirkland & Ellis has been a mainstay in high-profile bankruptcy cases, representing everyone from Lehman Brothers Holdings Inc. to Toys “R” Us Inc. Joshua Sussberg, an attorney and partner at Kirkland & Ellis law firm, said during the hearing: “The Luna collapse really was the start of everything.” A slide deck he was presenting showed subsequent defaults or insolvencies of crypto firms following Terra’s algorithmic stablecoin collapse.

What led to BlockFi’s downfall? In short, it was overexposed to the implosion of another crypto startup, FTX. When FTX filed for bankruptcy, it owed BlockFi more than $1 billion—again the $671 million on a now-defaulted loan to Alameda and $355 million in funds frozen on the company’s crypto exchange.

Making matters worse was the $400 million line of credit from FTX just a few months prior to the collapse of the company in July. The deal was approved by 89% of BlockFi’s shareholders but ended up being the company’s undoing.

blockfi ,ftx, debt, bankruptcy

As stated before, this isn’t the first time that it’s been revealed that FTX or its sister company, Alameda Research, owed money to the companies with which they inked so-called bailout deals. In fact, this pattern of crystallizing debt through these deals may have started with Terra’s algorithmic stablecoin collapse—an event that set off a domino effect leading up to BlockFi’s current predicament.

While Terra’s stablecoin was able to avoid complete collapse thanks to a $25 million bailout from Cosmos Foundation and OKCoin, many other startups weren’t so lucky. As more and more companies defaulted on their debts or became insolvent following Terra’s implosion, it became only a matter of time until something like this happened.

And now here we are—BlockFi has filed for Chapter 11 bankruptcy protection after weeks of speculation about its ability to stay afloat. It remains to be seen how this will all play out but one thing is for sure:FTX’s implosion has had ripple effects felt throughout the entire crypto industry.

The dominoes started falling when Terra’s algorithmic stablecoin collapsed—and they haven’t stopped since.BlockFi is just the latest casualty in a string of bankruptcies and insolvencies that have rocked the crypto industry over the past few months. The question now is: who will be next?

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