Following the FTX crisis, the American exchange BlockFi pauses withdrawals. So, what is the situation of this company already in turmoil a few weeks ago?
BlockFi freezes withdrawals
The collapse of Alameda Research and FTX continues to do damage. Indeed, it is the turn of the company BlockFi to pause the withdrawals of its customers. It recently informed its customers that it would "limit the activity of the platform".
As a reminder, BlockFi is a company that offers various financial services related to crypto-currencies. In particular, it offers collateralized loans via cryptos. The idea is simple, we deposit crypto funds and in exchange we can borrow an amount depending on the crypto assets deposited.
Users can generate interest thanks to BlockFi, which makes assets work on DeFi. In its heyday, BlockFi's high rates of return were a tempting bait for clients looking for passive income. Customers were offered up to 9.3% APY on some cryptos and stablecoins.
BlockFi says it had no knowledge of the problems encountered by FTX before this week. In a letter posted on social media, the company said:
"We, like the rest of the world, discovered this situation on Twitter. We are shocked and appalled by the news about FTX and Alameda."
The company cites the lack of clarity of the situation of FTX and Alameda to justify the cessation of its normal operation. The activity of the platform is limited, including withdrawals. It also urged its clients not to make deposits into their portfolios and via interest accounts.
BlockFi says it will try to communicate as much as it can about this exceptional situation. However, the circumstances being what they are, the company admits that it will probably communicate less frequently than usual.
The rescue of BlockFi by FTX
Earlier this year BlockFi took out a $400 million loan through FTX to preserve its business. A takeover of the company by the exchange had also been mentioned. Despite this, BlockFi had to part with 20% of its staffa few weeks ago.
However, the company said at the time it had a strong balance sheet and was confident in its long-term financial stability. BlockFi tweeted at the time:
"This agreement with FTX provides BlockFi with access to capital that strengthens our balance sheet and the strength of our platform."
The cards have been reshuffled since the collapse of FTX. This exposure of 400 million, although minimized by BlockFi, could therefore have major consequences for the company.
For now, SBF and FTX have clarified that the number 1 priority is the users of the platform and their assets. Also, companies and investors affected by the situation are not the priority for FTX.
A California Justice Investigation into FTX
A new development in the aftermath of this FTX crisis, the California financial protection agency has just opened an investigation into FTX.
After the agencies of Texas, New Jersey and the SEC, it is the turn of the administration of the "Golden State" to take an interest in the setbacks of the platform.
The Department of Financial Protection and Innovation states:
"We encourage consumers to be aware of the risks involved in investing in volatile crypto assets. Consumers and investors should be aware that crypto-assets are high-risk investments and should not expect to be reimbursed in case of loss."
The agency also warns investors that exchanges like FTX may not have properly warned clients about the risks they face. Crypto asset providers "are not governed by the same rules and protections as banks and credit unions, which are required to have deposit insurance," the agency said, adding that it takes its oversight responsibility with the utmost seriousness.
The agency recalls that it expects this type of companies to comply with the financial laws in force in the state.
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