Following BlockFi’s bankruptcy filing last year, FTX and BlockFi have been granted permission to continue procedures for the discussion of claims settlement. This phase permits FTX to present its reasons, perhaps paving the path for a settlement between the two companies.
BlockFi, a digital asset lender, declared bankruptcy in November 2022, blaming the consequences of FTX’s unexpected collapse as a major contributor. According to Coindesk, BlockFi has around $355 million on FTX’s platform and an additional $671 million owing to FTX’s sister company, Alameda Research, a statistical trading company.
On November 13, US bankruptcy judge Michael Kaplan changed the court rules, enabling FTX’s debtors to participate in claims settlement negotiations. “This allowed the crypto exchange to put forward its defense, challenges, and setoffs in the current bankruptcy proceedings against BlockFi’s claims.”
BlockFi is Pursuing Recovery Following Insolvency
For those who are unfamiliar with the FTX tale, here is a short summary. BlockFi had a significant arrangement with FTX for $240 million before it declared bankruptcy. However, the FTX exchange’s failure in November 2022 resulted in the cryptocurrency lender filing for Chapter 11 bankruptcy.
BlockFi was owed another $671 million by FTX’s sibling business, Alameda Research, and had $355 million blocked on the FTX market. BlockFi’s CEO, Zac Prince, recently testified in the court that convicted FTX’s former CEO guilty of fraud and money laundering charges. Prince testified against Sam Bankman-Fried, emphasizing how BlockFi’s insolvency was directly caused by its affiliation with FTX and Alameda Research.
BlockFi’s creditors accepted a bankruptcy reorganization plan in September. This strategy attempted to recuperate losses incurred as a result of the FTX debacle and the bankruptcy of crypto hedge fund Three Arrows Capital. Prince told the jury that FTX and BlockFi reportedly resulted in losses of “a little more than a billion dollars.”
Before FTX went bankrupt, Prince told the jury that his business had made approximately $2 billion in loans to Alameda. He went on to say that they were not aware of the hedge fund’s “unlimited” credit line with the exchange.
He cited financial arrangements with Alameda Research that began in 2020 and 2021. By May 2022, the crypto lender had extended the corporation up to USD 1 billion. Following that, the quantitative trading business fully returned the first loan, and BlockFi offered fresh loans totaling USD 850 million.
Restructuring
BlockFi’s creditors have accepted a bankruptcy reorganization plan that was approved by more than 90% of them.
The idea is to wind down the firm and pay clients, perhaps allowing money lost to FTX and the failed hedge fund Three Arrows Capital to be recovered. However, the proposal is still subject to final approval by the bankruptcy court.
According to a Nov. 14 filing, BlockFi has also begun conversations with 3AC.
Connections to FTX and Alameda Research
BlockFi’s financial problems worsened when the Terra Luna crypto ecosystem collapsed, resulting in severe losses. BlockFi demanded repayment for its loans from Alameda Research, kicking off a process that resulted in a billion-dollar loss.
Prior to declaring bankruptcy last year, the digital asset lender offered interest-bearing crypto-lending services. An unintentional disclosure of the company’s data revealed the extent of its financial problems. This impacted BlockFi’s 662,427 user base, with the vast majority having balances under $1,000.
Last year, the business filed a lawsuit against Bankman-Fried’s Emergent Fidelity Technologies. The confiscation of Robinhood shares given as collateral to BlockFi was the subject of this action, which was brought in the United States Bankruptcy Court for the District of New Jersey.
FTX Moves Assets Value $24 Million To Exchanges
FTX, a cryptocurrency exchange, has recently deposited significant funds on other exchanges. The insolvent exchange moved assets worth $24 million to Kraken and OKX in the last five hours.
250,000 SOL ($13.5 million), 8.27 million MATIC ($7.41 million), and 1,500 ETH ($3.1 million) were among the assets. The reason for these moves and their ramifications are unknown.
Furthermore, FTX and its partner Alameda have made significant transactions totaling $438 million to numerous exchanges, representing 42 distinct assets. The parties involved have not revealed the facts of these transactions, such as their purpose, beneficiaries, or underlying strategy.
The liquidity of FTX in SOL looks to be very restricted, according to the on-chain monitoring company SpotOnChain. FTX now owns just 3,408 SOLs worth around $179,000. This low liquidity means that executing large-scale SOL transactions on the exchange may be difficult.
Closing Thoughts
This ruling assures that FTX debtors have the opportunity to submit their case and oppose BlockFi’s claims throughout the FTX bankruptcy procedure, promoting a fair and complete review of the claims and resolving possible disagreements.
The continuation of the trial and the potential of mediation between FTX and BlockFi represents a watershed moment in this high-stakes legal war, with both sides eagerly anticipating the court’s decision. Stay tuned for more information as this case develops.
