Cryptocurrency lender BlockFi has filed for Chapter 11 bankruptcy protection. The move comes just over two weeks after BlockFi , including withdrawals, in the wake of crypto exchange FTX‘s implosion. "Given the lack of clarity on the status of FTX.com, FTX US and Alameda, we are not able to operate business as usual," the company . Withdrawals remain paused.
"BlockFi’s chapter 11 cases will enable BlockFi to stabilize its business and provide BlockFi with the opportunity to consummate a reorganization that maximizes value for all stakeholders," BlockFi said. "The court-supervised restructuring process is transparent and encourages dialogue between all stakeholders."
As with many other players in the industry, BlockFi faced an uncertain future after several crypto companies , taking the prices of many cryptocurrencies down with them. Soon after, FTX to prop up BlockFi with a $400 million credit line. The agreement also gave FTX the option to buy BlockFi for up to $240 million. As notes, that meant the companies had close financial ties and FTX’s has had a knock-on effect on BlockFi.
“With the collapse of FTX, the BlockFi management team and board of directors immediately took action to protect clients and the company,” Mark Renzi of Berkeley Research Group, BlockFi’s financial advisor, . “From inception, BlockFi has worked to positively shape the cryptocurrency industry and advance the sector. BlockFi looks forward to a transparent process that achieves the best outcome for all clients and other stakeholders.”
BlockFi says that, as part of its restructuring, it will "focus on recovering all obligations owed to BlockFi by its counterparties, including FTX and associated corporate entities." However, it noted that recoveries from FTX are likely to be delayed, given that company’s bankruptcy process. In addition, BlockFi says it has $256.9 million in cash on hand, which should provide “sufficient liquidity to support certain operations during the restructuring process," such as paying employee wages and continuing benefits.
In , BlockFi estimated it had more than 100,000 creditors and consolidated liabilities of between $1 billion and $10 billion. Among the listed creditors are FTX (to which it owes $275 million in loan repayments) and the Securities and Exchange Commission, which it owes $30 million.
Earlier this year, BlockFi agreed to from the SEC and 32 states. The SEC claimed that BlockFi offered interest accounts without registering them under the Securities Act. The agency also found that the company made "false and misleading" claims related to the level of risk in its lending activity and loan portfolio.
Filing for Chapter 11 bankruptcy protection doesn’t inherently mean a company is done for. The process allows a struggling business to keep trading while it restructures and looks for ways to pay back creditors. However, bankruptcy isn’t easy to come back from, and BlockFi is just the latest in a long line of dominoes to fall in the precarious crypto industry.