According to Blockfi’s co-founder Zac Prince, the company has signed definitive agreements with the crypto firm FTX and the deal is currently up to shareholder approval. Prince noted that the deal amounts to $680 million. However, $240 million could still be used for Blockfi acquisition at a fixed price.
FTX to Buy Blockfi For $240M, Zac Prince Says Company Has Lost $80 Million Due To 3AC Exposure
Zac Prince, the co-founder of Blockfi, explained that his company has come to an agreement with Sam Bankman-Fried’s crypto firm FTX. The deal is meant to “protect client funds” and is still subject to shareholder approval. Prince disclosed that part of the arrangement was a “$400 [million] revolving credit facility which is subordinate to all client funds.” Furthermore, the Blockfi CEO added that FTX has “an option to acquire Blockfi at a variable price of up to $240M based on performance triggers.”
Prince explained that Blockfi had not yet drawn on its credit facility and that the company increased interest rates for Blockfi Interest Accounts. “Blockfi rates are increasing for BTC, ETH, USDC, GUSD, PAX, BUSD, and USDT across all rate tiers,” the company’s rate hike announcement notes. Blockfi executives continued to explain what had led to the company’s current problems, including the existence of the crypto lender Celsius (Crypto Hedge Fund Three Arrows Capital) and its crypto-hedge fund Three Arrows Capital (3AC). While Blockfi had zero exposure to Celsius, Prince said that Celsius freezing withdrawals caused a significant “uptick in client withdrawals” on the Blockfi platform.
Blockfi had exposure to the cryptocurrency hedge fund, which filed for Chapter 15 bankruptcy recently as 3AC. “[As] 3AC news spread further fear in the market … we were one of the first to fully accelerate our overcollateralized loan to 3AC, as well as liquidate and hedge all collateral,” Prince remarked. “[Blockfi] did experience ~$80M in losses, which is a fraction of losses reported by others.” The Blockfi CEO added:
The full impact on Blockfi from 3AC is shown in this figure. Blockfi has no additional exposure, and any loss we do experience will be covered by the bank. There is no effect on client funds.
‘Clients Not Customers’ — Blockfi Was Presented ‘With Various Unattractive Options Where Client Funds Would Take a Haircut’
Prince said that the company’s 3AC losses will be a part of the hedge fund’s “ongoing bankruptcy case(s)” and the Blockfi executive noted that more information on those proceedings will come out as they come to fruition. “As a reminder, our risk framework combines counterparty credit analysis, collateral haircuts, and portfolio limits based on stress testing, and we have zero client funds in [decentralized finance] protocols,” Prince added.
Toward the end of Prince’s Twitter thread about the definitive agreements with FTX, the CEO said that Blockfi’s main goal has always been focused on protecting client funds. Prince further noted that it was important for Blockfi to bolster the company’s balance sheet.
“We were presented with various unattractive options where client funds would take a haircut or be behind a lender in the capital stack,” Prince revealedBlockfi has received offers from various other companies, according to this explanation. “These alternatives were completely unacceptable to me, [Flori Marquez] and our board and conflict with our core value of ‘Clients not Customers’ as well as the interests of Blockfi and our shareholders,” Prince concluded.
What do you think about the Blockfi CEO’s Twitter thread regarding FTX giving a credit line to the company and the possibility of acquiring Blockfi for $240 million? Comment below to let us know your thoughts on this topic.
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