September 24, 2022

BlockFi Announces Deals with FTX US

BlockFi recently signed a deal with crypto derivatives exchange FTX US, which will give the latter the option of buying the lending platform.

The agreement

Zac Prince, the chief executive of BlockFi, announced on Friday via Twitter that they had entered into an agreement with FTX US. The crypto lending disclosed that the terms of the deal involved a revolving credit facility worth $400 million and it would also give the derivatives exchange the opportunity to acquire BlockFi for a price of up to $240 million, depending on its performance.

BlockFi’s CEO stated that they had decided to sign the deal in order to bolster the liquidity of the lending platform and for protecting the funds of its clients. Shareholder approval is still needed for the deal to go through. Prince asserted that they had come to the decision because of the volatility in the crypto market of late, along with the events related to Three Arrows Capital (3AC) and Celsius Network.

The week after the announcement from Celsius Network about pausing its withdrawals had resulted in losses of $80 million for the crypto lending platform. The company had explored different options for recovery, which were quite ‘unattractive’, and had then decided to partner with FTX US.

Prince offers clarification

The CEO of the lending company asserted that all their products and services would continue operating as per routine, including deposits and withdrawals, their credit cards, trading platform as well as global institutional services. He said that the only difference was the additional capital strength and nothing more.

On Friday, BlockFi also criticized reports that had been circulating around about its deal with FTX. According to rumors, the crypto exchange was going to purchase the lending platform for about $25 million. The chief executive asserted that the acquisition price of $240 million, the credit facility of $400 million, and some other considerations put the deal at a value of $680 million.

It should be noted that this is still too low for a company that had last been valued in June 2021 at $5 billion. According to Prince, the report had come because of a call that had leaked partially and the rest of it had been conjecture.

Trouble in the market

When crypto hedge fund Three Arrows Capital (3AC) had been unable to meet its lenders’ margin calls in June, BlockFi had been one of the first companies that decided to liquidate its positions. Furthermore, the crypto lending firm had also been feeling the heat due to extreme price volatility in the crypto market, which had resulted in a downturn that does not appear to be stopping.

Therefore, it announced that it was letting go of 20% of its staff, which comprises 850 employees. It had decided to keep about 600 people on its team. However, it should be noted that BlockFi did not clarify if the deal with FTX US would have any impact on this decision. It is not the only company to have decided to cut down its workforce, as others like Coinbase and Gemini, are also doing the same.

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