FTX, the bankrupt crypto exchange that mismanaged customer funds and can’t account for billions in assets, is currently imploding like a dying sun. The wave of financial destruction wrought by the meltdown now threatens to swallow other companies that did business with it, and the latest victim is BlockFi, one of the most well-known decentralized lenders in the crypto sphere.
Once an FTX partner, BlockFi now has plans to lay off a significant chunk of its workforce and is considering filing for Chapter 11 bankruptcy soon, reports the Wall Street Journal, citing several people familiar with the matter. The lender had previously admitted to customers that it had “significant exposure” to FTX’s mayhem due to its substantial financial ties to the troubled crypto exchange.
BlockFi initially warned customers about the severe state of things in a blog post published Monday. “We do have significant exposure to FTX and associated corporate entities that encompasses obligations owed to us by Alameda, assets held at FTX.com, and undrawn amounts from our credit line with FTX.US,” the company wrote at the time.
Earlier this year, BlockFi was already struggling financially from the hits it took during 2022's harsh “crypto winter,” but in June it signed a term sheet with FTX to secure what was essentially a financial bailout. FTX agreed to a $250 million revolving line of credit that gave BlockFi “access to further capital,” and the two companies made plans for future collaborations together. At the time, that must have seemed pretty exciting. Sam Bankman-Fried, the CEO of FTX, bailed out multiple struggling crypto exchanges that are now suffering because of his dire mismanagement.
“Today’s landmark announcement reinforces the commitment that BlockFi has to serving its clients and ensuring their funds are safeguarded,” Zac Prince, CEO & Founder of BlockFi, ironically commented, on the day of the bailout deal. “This agreement also unlocks future collaboration and innovation between BlockFi and FTX as we work to accelerate prosperity worldwide through crypto financial services.” [Emphasis ours.]
Now, less than a week after FTX filed for Chapter 11, BlockFi is exploring bankruptcy and will lay off some staff, the Journal reports. The company, which was once valued at over $3 billion, has been working with a bankruptcy partner at the law firm Haynes & Boone, Kenric Kattner, according to the paper. Gizmodo reached out to BlockFi for comment on the state of the company and will update this story if they respond.
FTX’s meltdown, which began in earnest last week, has sent shudders throughout the web3 world. It is unclear just how much damage this whole thing will cause to the broader crypto ecosystem. Some have predicted that it could be the industry’s equivalent to Lehman Brothers, potentially taking down a slew of other companies by association. If BlockFi does go bankrupt, it could be the first domino to fall.