BlockFi to Wind Down Operations, Return Assets to Customers

Crypto lender BlockFi has announced that it will wind down its operations and begin returning crypto assets to customers.

BlockFi has emerged from bankruptcy and will now focus on returning assets to its customers, Reuters reported on Tuesday (Oct. 24).

This decision comes 11 months after the company faced difficulties due to the collapse of FTX, a major player in the cryptocurrency industry. Under a court-approved bankruptcy plan, the company also said it intends to pursue additional payments through the bankruptcies of other crypto companies, including FTX and Three Arrows Capital.

According to court filings, BlockFi estimates that customers with interest-bearing Earn accounts will receive between 39.4% and 100% of the value in their accounts. This means that while some customers may receive their full funds back, others may not.

The bankruptcy filing in November revealed that BlockFi’s loans to FTX’s sister firm Alameda Research contributed to its collapse. The ongoing trial of FTX founder Sam Bankman-Fried for fraud further complicates the situation.

While withdrawals are available to nearly all of its Wallet customers, BlockFi has stated that customers with BlockFi Interest Accounts and Retail Loans will be repaid over the coming months, with the amounts varying based on the outcome of the FTX bankruptcy, Reuters reported.

The rise of crypto lenders, often referred to as the de facto banks of the crypto world, was a trend during the pandemic. These companies attracted retail customers with double-digit interest rates in exchange for their crypto deposits.

However, unlike traditional lenders, crypto lenders are not required to hold capital or liquidity buffers. This lack of regulation left some companies exposed when a shortage of collateral occurred, resulting in significant losses for both the lenders and their customers.

BlockFi’s decision to wind down its operations serves as a reminder of the risks associated with the cryptocurrency industry. The lack of regulatory oversight and the volatile nature of the market can lead to unexpected challenges and financial instability. 

The outcome of ongoing litigations, particularly the FTX bankruptcy, will play a significant role in determining the final recovery amounts for BlockFi’s customers. 

Meanwhile, Bankman-Fried’s trial is continuing on into its third week. 

As PYMNTS reported Tuesday, Bankman-Fried enlisting the help of an expert witness to challenge the testimonies of key witnesses in his ongoing legal battle. 

Bankman-Fried’s legal team is tapping Joseph Pimbley from PF2 Securities, a litigation consulting firm, to provide expert testimony to rebut the claims made by former Alameda Research CEO Caroline Ellison, FTX co-founder Gary Wang, former FTX Engineering Director Nishad Singh and former FTX employee Adam Yedidia regarding the financial ties between FTX and Alameda Research, according to the report.

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