On Tuesday, a source close to BlockFi revealed that the crypto lending platform was contemplating filing for Chapter 11 bankruptcy, after the collapse of the FTX crypto exchange.
The company is also preparing for another round of job cuts, having already reduced staff earlier this year, like many other companies.
It appears that while exploring its options, the crypto lending platform has also had discussions with Binance, the world’s largest crypto exchange, about some financial help.
The scenario
Last Thursday, BlockFi announced that it was pausing withdrawals for its customers and it reaffirmed on Monday that the withdrawals would remain paused and activity would also be limited for now.
The company also acknowledged that its exposure to FTX had been significant because of which it was unable to maintain business as usual.
On Monday, BlockFi informed its customers that rumors about its assets being stored on FTX were false, but it admitted that they were exposed to FTX as well as other entities affiliated with it.
The lending platform also said that Alameda Research had obligations to BlockFi and they also had undrawn amounts relating to the credit line of the company with FTX US.
Over the summer, FTX US had given a credit line to BlockFi worth $400 million because the crypto lender had been facing financial problems after the rout in the crypto market due to the Terra ecosystem collapse.
BlockFi’s moves
On Monday, there was a meeting at BlockFi, and employees were informed about the seriousness of the situation of company.
Sources said that they did not mention layoffs explicitly. Even though BlockFi had conducted voluntary buyouts back in July, there are still 300 people in its workforce.
The company did have enough liquidity to be able to process the withdrawal requests that had been submitted on the platform before it announced the pause on Thursday.
The email that BlockFi sent to customers on Monday also mentioned that it had engaged outside advisors to help it in figuring out the next steps.
It further said that Haynes and Boones were still their legal counsel and Berkeley Research Group (BRG) is also their financial advisor, which is a restructuring firm that is usually hired to assist in bankruptcy.
FTX’s collapse
BlockFi is one of the long lists of victims that are suffering due to the sudden downfall of the FTX crypto exchange and Sam Bankman-Fried’s empire.
The entire fiasco began last Sunday when Binance’s CEO announced on Twitter that the company would begin selling its FTT holdings, which was the native token of the FTX exchange.
This resulted in a bank run on FTX after it received withdrawal requests of over $5 billion on Sunday alone.
On Tuesday, SBF said that Binance had entered into an agreement for acquiring FTX, only for it to back out of the deal a day later saying that FTX was beyond their help.
On Friday, FTX came forward and filed for bankruptcy, along with its affiliates, and Sam Bankman-Fried stepped down from his position.