BlockFi, one of the most prominent lending protocols in the crypto industry, filed for bankruptcy on November 29, 2022, due to its inability to continue operations.
BlockFi still owes FTX $275 million.
The SEC is also listed as one of BlockFi’s top creditors.
BlockFi was fined $100 million by the SEC in February for failing to properly register its crypto lending product.
— Genevieve Roch-Decter, CFA (@GRDecter) November 28, 2022
At the time of the filing, the platform reported that it had 100,000 creditors, debts between $ 1 billion and $10 billion to offset, and the US SEC and FTX exchanges are among the line of creditors.
A crypto enthusiast and writer on Twitter, Genevieve Roch-Decter, CFA, also posted the news on her page, analyzing what went wrong with BlockFi that led to its bankruptcy.
She also explained why the SEC and FTX Exchange are among the platform’s creditors; the US SEC fined the platform in February 2022 for not properly registering its lending products.
FTX, on the other hand, appeared to save BlockFi earlier this year in July, when it nearly crashed due to the $80 million loss it experienced during the collapse of Three Arrows Capital, a Singapore-based crypto platform.
However, FTX saved it through a two-faced deal, a $400 million line of credit, and the eventual purchase of BlockFi for about $240 million, but the platform was only worth about $25 million at the time of the deal.
The FTX exchange was highly praised for saving the lending protocol, and its then CEO, Samuel Bankman Fried, was likened to the JP Morgan of the crypto industry.
However, what felt like a rescue was a transfer from one problem to another, as it became evident some months later when FTX Exchange and its sister platform Alameda were accused of mishandling users’ funds and fraud by a US agency.
They temporarily halted operations on November 8, and the following day, the exchange and all related platforms went offline and became inaccessible. Three days after the temporary cease in operations, the platform filed for bankruptcy, and its CEO, SBF, resigned.
The FTX crash affected various platforms and spread contagion, with Solana and Oxygen Protocol among the DeFi platforms badly hit.
On November 10, a day before FTX filed for bankruptcy, BlockFi temporarily froze withdrawals, and the reason was because of the FTX crisis.
These recent developments, like the bankruptcy of Three Arrows Capital, Luna, and the FTX exchange, will result in a massive loss of funds for their users. However, the impact of this event on the entire industry is unknown as we await more information on the platform’s liquidity situation.
Nevertheless, according to the report presented by the platform, they are said to have $256.9 million in total cash on hand currently. But until finance experts determine the level of damage and the way forward, no one knows what will eventually happen to the platform or its creditors’ funds.
