BlockFi Completes FTX Claims Sale Before Bankruptcy

BlockFi, a centralized crypto lender, has completed the sale of its FTX claims, marking a pivotal step in its wind-down process. This sale follows a significant settlement with the FTX and Alameda Research estates and promises full repayment to eligible creditors. The company has outlined a clear distribution plan for customers and creditors, aiming to resolve claims promptly.

Key Takeaways

• BlockFi completed the sale of FTX claims, crucial for its wind-down.

• The sale enables full repayment to eligible creditors in fiat terms.

• Distribution plans are in place, with crypto and fiat claims processed separately.

BlockFi and FTX Settlement Details

While the exact details of the sale remain undisclosed, an unnamed third-party facilitated the transaction. This follows BlockFi’s $874.5 million in-principle settlement with the FTX and Alameda Research estates in March 2023, allowing the plan administrator to prepare for distributions to BlockFi creditors.

Mohsin Y. Meghji, BlockFi plan administrator, stated that the transaction is the final chapter in the wind-down and the best possible outcome for BlockFi customers. He noted that the recoveries on customer claims and the timeline for these recoveries were unimaginable when the cases were filed in November 2022. The sale is expected to enable a near-term final distribution, covering 100% of eligible customer and general unsecured creditor claims in fiat terms. BlockFi plans to start the final customer distribution as quickly as reasonably practicable.

On May 9, BlockFi shut down its web platform and announced plans for temporary crypto distributions via Coinbase in July. Fiat claims will be managed by Kroll and Digital Disbursements, independent of Coinbase, and will be processed in batches over the coming months. Non-U.S. clients will face additional hurdles. According to the firm, Distributions to BlockFi International creditors may require extra identity verification and Know Your Customer diligence to comply with international standards.

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BlockFi’s Bankruptcy Journey and the Crypto Lending Crisis

BlockFi’s troubles began in November 2022 when it paused customer withdrawals and filed for Chapter 11 bankruptcy protection. The company, which offered interest-yielding deposit accounts and loaned out user deposits to crypto industry clients, was among several centralized crypto lenders that faced significant challenges in 2022.

The crypto lending sector experienced major setbacks following the collapse of the Terra ecosystem, FTX, and Three Arrows Capital (3AC). Other firms that filed for bankruptcy during this period include Celsius, Voyager Digital, and Genesis.

BlockFi’s financial troubles were largely due to its exposure through loans to Alameda Research, the hedge fund affiliated with FTX. Despite these challenges, BlockFi allowed its Wallet customers to withdraw their funds in October 2023, providing some relief amid the ongoing bankruptcy proceedings.

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Conclusion

BlockFi’s successful sale of FTX claims marks a crucial milestone in its wind-down efforts. This move follows a significant settlement and promises full repayment to eligible creditors, with distributions set to commence promptly. While non-U.S. clients face additional verification steps, the plan aims to ensure all creditors are repaid efficiently. BlockFi’s journey through bankruptcy highlights the broader challenges faced by the crypto lending sector in 2022.

FAQ

What led to BlockFi’s bankruptcy?

BlockFi filed for bankruptcy in November 2022 due to significant exposure through loans to Alameda Research, combined with broader challenges in the crypto lending sector.

How will BlockFi distribute repayments to creditors?

BlockFi plans to handle crypto distributions via Coinbase and fiat claims through Kroll and Digital Disbursements, processed in batches over the coming months.

Why do non-U.S. clients face extra steps for repayment?

Non-U.S. clients require additional identity verification and compliance with international standards to ensure secure and accurate distributions.