We’re excited to share an update on our previously announced term sheet with FTX US – and how we’ve broadened the scope of the initial deal for the benefit of all key BlockFi stakeholders.
Yesterday, June 30, we signed definitive agreements, subject to shareholder approval, with FTX US for:
- A $400M revolving credit facility which is subordinate to all client funds, and
- An option to acquire BlockFi at a variable price of up to $240M based on performance triggers.
This, together with other potential consideration, represents a total value of up to $680M.
We have not drawn on this credit facility to date and have continued to operate all our products and services normally. In fact, we raised crypto interest rates, effective today, July 1, across the board for major assets.
So, what events led up to this deal with FTX US?
Crypto market volatility, particularly market events related to Celsius and 3AC, had a negative impact on BlockFi. The Celsius news on June 12th started an uptick in client withdrawals from BlockFi’s platform despite us having no exposure to them.
In the same week, 3AC news spread further fear in the market. While we were one of the first to fully accelerate our overcollateralized loan to 3AC, as well as liquidate and hedge all collateral, we did experience ~$80M in losses. This is a small fraction, though, of losses publicly reported by other lenders over the last week.
This represents the full extent of the impact to BlockFi from 3AC. We have no further exposure and the limited losses we did experience will be absorbed by BlockFi with no impact to client funds. Our 3AC losses will be part of 3AC’s ongoing bankruptcy case(s) so more info will surely come out as those cases proceed.
If you’re curious about how we’re handling market volatility, we encourage you to check out Zac’s podcast with Castle Island VC’s Matt Walsh. 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 DeFi protocols. You can read more about our risk management and liquidity practices here.
As a matter of principle, we fundamentally believe in protecting client funds. Not only because it’s absolutely the right thing to do, but this also benefits the ongoing health and adoption of crypto financial services worldwide. Therefore, it was important to add capital to our balance sheet to bolster liquidity and protect client funds.
We were presented with various unattractive options where client funds would take a haircut or be behind a lender in the capital stack. These alternatives were completely unacceptable to us and our Board and conflict with our core value of “Clients not Customers” as well as the interests of BlockFi and our shareholders.
Ultimately, we found a great partner in FTX US, who shares our commitment to clients. This represents the best path forward for all BlockFi stakeholders and the crypto ecosystem as a whole.
For our clients, absolutely nothing changes in terms of how you experience BlockFi products – but there is now even more upside in the future. The FTX US platform and products are highly complementary to BlockFi and we anticipate enhancements to our services through increased collaboration. Expect more exciting news to come on this soon.
As always, we will prioritize these efforts based on trying to add the most value for our clients – many of whom have been with BlockFi through numerous market cycles. All of our products and services – including funding and withdrawals, our trading platform, credit card, and global institutional services – continue to operate normally, with incremental capital strength behind them.
To date our clients have received over $575M in crypto interest, including >$10M today, July 1, from BlockFi and have never taken a loss of principal. We have updated interest rates every month and processed withdrawals within our terms and conditions since Day 1.
Outside of this transaction, we realize that there is a lot of fear, uncertainty, and doubt in the crypto markets. From our vantage point, we continue to see a healthy ecosystem on the rise – with billions of institutional borrowing demand allowing us to offer innovative wealth building products, such as BlockFi Personalized Yield providing our highest rates ever for individually negotiated arrangements.
Lastly, we are extraordinarily disappointed that an inappropriately leaked call led to reporting on potential negative impacts to the BlockFi team. These comments were purely personal conjecture by a single party and were subsequently retracted.
We owe a huge debt of gratitude to our incredible colleagues who work so hard to deliver a world class client experience and realize our mission: to accelerate prosperity worldwide through crypto financial services.
We are an organization built on transparency – not only with our team, but also with you, our clients. We’ve been limited in what we could say up until now as we ironed out the transaction details, and we hope this quells some of the inaccurate reporting of the last few days. We are incredibly proud of what this transaction represents for BlockFi, for our clients, and for the crypto ecosystem as a whole. Stay tuned for more to come!
Zac and Flori
Last updated on July 6th, 2022