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BlockFi Decides to Liquidate Digital-Assets Lending Platform Amid Bankruptcy Proceedings

Regulatory Challenges and Litigation Impact Sale Considerations

Tue, 16 May 2023, 14:06 pm UTC

BlockFi, a cryptocurrency lender on the brink of bankruptcy, has made the decision to liquidate its digital-assets lending platform. The company has determined that selling the platform to a new owner would not yield significant value for its numerous creditors.

BlockFi has submitted a Chapter 11 reorganization plan to the U.S. Bankruptcy Court in Trenton, NJ. The plan, which will be voted on by creditors, involves more than 100,000 customers and aims to address the company's financial struggles.

Since the beginning of the year, the company has been considering the sale of its digital assets platform and approximately 660,000 client accounts. However, due to recent shifts in the regulatory landscape, the company has concluded that selling the platform may not generate substantial value for its creditors.

In the filing, BlockFi stated that the recovery amounts for clients would largely depend on the outcomes of ongoing litigation against their commercial counterparts. These include cryptocurrency exchange FTX, trading firm Alameda Research (established by Sam Bankman-Fried), crypto hedge fund Three Arrows Capital, and crypto mining company Core Scientific.

The filing highlighted that the success or failure of these lawsuits could make a difference of over $1 billion for clients. BlockFi's top 50 creditors, as stated in the filing, are owed nearly $1.3 billion. Several cryptocurrency firms, including FTX, Alameda, Celsius Network, Three Arrows, Voyager Digital, and Core Scientific, have filed for bankruptcy since mid-2022. Some companies have opted for liquidation as a means to distribute shares to customers, allowing them to emerge from Chapter 11.

Recently, due to regulatory concerns, the American branch of the top global crypto exchange Binance declined to acquire user accounts at Voyage. BlockFi, unable to find a suitable buyer, stated that it believes the proposed liquidation plan is the quickest way to return crypto wallet account funds to its users.

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