Rattibha

Market Sentiment

9 Tweets Mar 03, 2023

🚨Breaking 🚨
Crypto lender #BlockFi has just filed for Chapter 11 Bankruptcy.
- Up to $10 Billion in liabilities with only $256M cash on hand
- More than 100K creditors
- Owes the U.S SEC $30 Million in pending fines
- Lawsuit against SBF for his Robinhood stake 🧵

To understand how BlockFi went under, we need to back up a bit:
It all started with the spectacular collapse of Terra Luna back in May.
Hedge fund Three Arrows Capital (3AC) had significant exposure to Luna. 3AC was unable to meet the margin call from BlockFi and others.

BlockFi suffered ~$80M Million in losses following the 3AC collapse and nearly went under with Voyager.
That's when SBF came in with a $400 Million credit line. It allowed them to buy BlockFi at a max price of $240 Million (BlockFi was worth $4.8 Billion a few months prior)

Just when everyone thought the worst was over, FTX froze withdrawals on Nov 10th and went under soon after.
BlockFi has said it had “significant exposure” to FTX and had made loans to FTX's crypto trading firm Alameda partly secured by FTX’s FTT tokens.

With FTX bankrupt, BlockFi no longer has access to their credit line and also now has no hope of getting the money it has lent FTX, as FTT token price has completely collapsed.
BlockFi now has more than 100,000 creditors whom they owe ~$10 Billion as per their filing.

BlockFi had APY as high as 9.25%!
Every time I asked someone to try and understand how they are getting a ‘risk-free’ return of 10% or more by staking their Crypto, I got a vague response like
"Anchor pays 20%, because there is no middle man, that’s the power of DeFi!"

SEC had charged BlockFi for failing to register its retail crypto lending product - and fined BlockFi for $100 Million.
The irony is BlockFi still owes $30M+ to the SEC. Whether the SEC or the public gets any money back is anyone's guess!
Now you know what the risk was.