Another bankruptcy has just hit the cryptocurrency industry. Wiped out in the collapse of FTX, the BlockFi lending platform has just bitten the dust. In the spring of 2022, the company showed the first signs of weakness.
Binance CEO Chanpgeng Zhao predicted it: other players in the cryptocurrency world will disappear in the near future. Interviewed by Bloomberg TV shortly after the collapse of rival FTX, the Chinese-Canadian entrepreneur said:
“I expect there will be a contagion effect. Whenever a major player goes down, especially an exchange platform, there are many other individuals or institutions that have money on the platform.”
As we feared for weeks, BlockFi, a cryptocurrency lending platform, has just been declared bankrupt in the United States. Following FTX, the company is seeking Chapter 11 bankruptcy protection. The platform, which still had 650,000 customers, will seek a financial settlement with its creditors under the direction of the courts. Withdrawals remain completely blocked until further notice. Unsurprisingly, BlockFi’s services, including digital currency lending, are on hold.
Today, BlockFi filed voluntary cases under Chapter 11 of the US Bankruptcy Code.https://t.co/adaAx6me4r
—BlockFi (@BlockFi) November 28, 2022
With the help of the New Jersey courts, BlockFi agrees ” stabilize its business and provide the Company with the opportunity to complete a comprehensive restructuring transaction that maximizes value for all customers and other stakeholders”. At the same time, the company will significantly cut to save costswhile maintaining ” critical business functions » during the bankruptcy process. BlockFi unveils $256.9 million in cash for “support certain operations during the restructuring process”.
Also Read: Another Cryptocurrency Giant Risks Bankruptcy, Carnage Continues
BlockFi points finger at FTX disaster
Founded in 2017, the company openly attributes its new financial difficulties to the defeat of the FTX empire. A few hours after the exchange filed for bankruptcy on November 11, BlockFi had also made the decision to suspend withdrawals. Like FTX, the platform has met a liquidity crisis. It was impossible to refund all users in case of mass withdrawals. BlockFi admitted to having ” significant exposure to FTX and related legal entities”. It is clear that some of the group’s assets were on the FTX platform. The bank cards offered by BlockFi were deactivated.
“Following the collapse of FTX, BlockFi’s management team and board of directors took immediate action to protect customers and the company”says BlockFi financial advisor Mark Renzi.
Note, however, that BlockFi has registered severe turbulence from the first half of 2022. Very affected by the death of the Terra ecosystem and the stablecoin UST, the platform survived for several more months thanks to FTX, which then presented itself as the savior of cryptocurrency. Indeed, at the end of June, BlockFi negotiated a $250 million line of credit with FTX. A few weeks later, the Sam Bankman-Fried platform added 150 million to the deal, upgrading its image as the white knight of the industry. BlockFi was kept alive by FTX and avoided a serious liquidity crisis until the end of November, even though many customers withdrew their funds at the start of the summer.
what happened to #BlockFi ?
— Lookonchain (@lookonchain) November 11, 2022
As blockchain specialist LookOnChain points out, The bankruptcy of BlockFi is not fully attributable to FTX. The origins of the bankruptcy go back to the spring. A few months earlier, Singapore-based fund 3AC abruptly collapsed in the wake of the UST. However, BlockFi had lent large amounts to the fund prior to the market crash. At the same time, the company made the mistake of investing in the Grayscale Bitcoin Trust (GBTC) to make a profit with a high return. It is the largest institutional crypto investment vehicle. As a result, the Grayscale company enables institutional players to invest in Bitcoin without actually owning it. Grayscale is responsible for conservation. After a fall in demand and the emergence of concerns over Grayscale’s management, GBTC lost much of its value… contributing to the deterioration of BlockFi’s financial health.
According to court documents, BlockFi $1.3 billion to the 50 largest creditors. In court, the company announces more than 100,000 creditors and between $1 billion and $10 billion in assets and liabilities. Details of BlockFi’s accounts will be revealed in the coming weeks.
The end of centralized platforms?
Following the successive routes of FTX, Celsius, and BlockFi, the centralized exchange platforms (CEX), which manage their clients’ private keys and cryptocurrencies, appear to be gradually abandoned by investors. Shortly after the FTX explosion, users massively withdrew their crypto assets from platforms, according to blockchain data from CryptoQuant and Glassnode.
“We have withdrawn tokens from exchanges at a truly historic rate. […] The two main crypto assets, BTC and ETH, are listed at historic rates »says Glassnode in a report published in late November.
Faced with the storm blowing over the industry, many investors prefer it repatriate their assets to physical wallets (Ledger, Trezor, etc.) or non-custodial digital wallets, such as Metamask. In these cases, the buyer owns their private keys. Some observers also expect centralized platforms, such as Binance or Crypto.com, to be overtaken by decentralized services (DEX) such as Pancake Swap or Uniswap. Hosam Mahmoud of CryptoCompare is also counting on it ” increased adoption of DEXs in the coming months.”
However, it is still too early to predict the disappearance of centralized services. According to analysts from the bank JP Morgan, centralized exchanges will continue to account for the majority of cryptocurrency transactions. According to financial experts decentralized platforms are not yet mature enough for widespread acceptance.
“While there has been some increase in overall cryptocurrency trading activity on DEXs in recent weeks, this more likely reflects the crash of crypto prices followed by automatic liquidations caused by the fall of FTX. »estimates JP Morgan in a report from CoinDesK.