Distressed crypto lender BlockFi has filed for Chapter 11 bankruptcy protection, nearly two weeks after halting withdrawals of customer deposits due to significant exposure to bankrupt exchange FTX.
Approximately eight additional affiliated companies are part of the proceedings, including its Bermuda subsidiary, it said a court filing on Monday.
In the 23-page bankruptcy filing, BlockFi indicates it has more than 100,000 creditors, with liabilities in the range of $1 billion to $10 billion. The company has $257 million in cash on hand, which it says will provide sufficient liquidity to support operations during the restructuring process.
By comparison, Sam Bankman-Fried’s cryptocurrency exchange FTX had more than $10 billion in both assets and debts. BlockFi is now planning to reduce expenses considerably, including laying off two-thirds of its 850 workers.
BlockFi listed an outstanding $275 million loan to FTX.US and called the American arm of FTX’s now-bankrupt exchange as its second-largest creditor. This was due to FTX’s bailout of BlockFi in July of this year, which involved FTX providing the lender with a $400 million credit facility and the option to buy the company for up to $240 million.
“With the collapse of FTX, the BlockFi management team and board of directors immediately took action to protect clients and the Company. 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,” said Mark Renzi of Berkeley Research Group, the company’s financial advisor.
The Jersey City, New Jersey-based company said the liquidity crunch was due to its exposure to FTX via loans to SBF’s trading arm, Alameda Research, as well as assets held on the platform that became trapped there.
Following FTX’s fallout, BlockFi paused withdrawals and limited activity on its platform earlier this month saying it couldn’t operate as usual. The firm was also facing potential losses of up to $80 millions due to exposure to crypto miner Core Scientific, which raised the possibility of its bankruptcy.
BlockFi is said to have lent Core Scientific as part of its program to finance bitcoin miners. The New Jersey-based lender used to take various assets pledged by borrowers to back up their requests for crypto loans. If the borrower gets the loan and fails to repay it, the lender has the right to seize the collateral to make up for the lost income.