The cryptocurrency lender and financial firm BlockFi voluntarily filed for bankruptcy on Monday, the latest in a series of collapses by prominent crypto firms this year.
The company called the decision “difficult but but necessary” in a note on the company’s website, stating that it was left with no other options after the “shocking” and sudden collapse of FTX, the prominent crypto firm founded by Sam Bankman-Fried which stepped in to rescue BlockFi in a $400 million deal this year amid a wider crypto market rout.
As part of the subsequent reorganization, BlockFi will undergo layoffs and otherwise reduce expenses, the company said. The crypto-focused site Decrypt, which was the first to report the news, said the layoffs will affect “a large portion” of the company’s employees.
“With the collapse of FTX, the BlockFi management team and board of directors immediately took action to protect clients and the Company,” Mark Renzi, who works for the company’s financial advisor, said in a prepared statement.
BlockFi is a leader in the crypto loans industry, and its business model has drawn the attention of regulators for its inherent risk. Similar to a bank, but with higher returns and fewer protections, customers deposit funds into their accounts and earn a yield on loans that BlockFi offered to clients. In February, BlockFi agreed to pay a $100 million penalty to the SEC and 32 states to settle charges that it sold unregistered securities and made "false and misleading statements" about the "level of risk in its loan portfolio and lending activity."
Crypto lending was widely pushed by advocates of the cryptocurrency industry as a potential alternative to banks. In May, 2021, for example, Digg founder Kevin Rose had BlockFi CEO Zac Prince on his popular Modern Finance podcast to talk at length about the disruptive nature of BlockFi and other decentralized finance or "defi" companies, as well as the “safest and smartest way to earn interest on cryptocurrency.” “We’re in the business of risk management at BlockFi,” Prince said.
Crypto-lending companies have been hit hard by the wider collapse in crypto markets, which over the past year has seen multi-billion dollar token economies—like Terra, one of the largest algorithmic stablecoins—collapse. In May, Terra broke its dollar peg after traders started a bank run which devalued the crypto asset and led to a liquidity crunch among crypto firms that held significant reserves of the coin.
Amid the chaos, BlockFi crypto-bank competitor Celsius collapsed and filed for bankruptcy. With the crypto markets and lending businesses specifically teetering on the edge, Bankman-Fried stepped in and agreed to a $400 million deal to rescue BlockFi.
On November 11, a few days after FTX’s collapse, the company announced that it was pausing client withdrawals and otherwise limiting platform activity, saying that “like the rest of the world,” it had found out about FTX’s collapse through Twitter, which had led to the “heartbreaking” decision. Withdrawals will continue to remain paused for now, the company said Monday.
As of Monday, BlockFi continued to state on its website that the crypto lender offers “leading protection measures to ensure your peace of mind.”