5 Highlights From BlockFi Bankruptcy Proceedings

BlockFi is the latest to be affected by FTX contagion — a round up of the key events that have unfolded so far


BlockFi co-founder Flori Marquez | Blockworks exclusive art by axel rangel


The BlockFi bankruptcy last week marked the latest instance of crypto’s collapse starting to resemble TradFi’s 2008 crisis. More high-flying firms are running out of financial runway, if they have yet to shut their doors entirely. 

Attorneys for BlockFi — once one of the largest crypto lenders — appeared before a bankruptcy court in New Jersey, where the company is headquartered, on Monday. Industry participants, closely following the proceedings, told Blockworks what BlockFi’s insolvency means for the industry more broadly. 

Crypto companies, if the entities haven’t done so already, ought to take a serious look at their accounting practice and ensure compliance with fast-moving regulatory requirements, according to Aaron Jacob, head of accounting solutions at TaxBit.

“After a chaotic crypto winter, regulatory clarity, transparency, and better accounting will let spring finally emerge again,” Jacob said.

BlockFi’s next court appearance is tentatively set for Jan. 9, 2023. Below is a rundown of what’s happened so far:

BlockFi sues Sam Bankman-Fried for Robinhood shares

Soon after filing for Chapter 11 bankruptcy, BlockFi sued embattled FTX founder Sam Bankman-Fried for outstanding Robinhood shares. 

BlockFi alleged it entered a Nov. 9 agreement to specific payment obligations from an unnamed borrower, later identified as Bankman-Fried’s Alameda Research, by pledging unidentified “common stock” as collateral. 

Bankman-Fried previously acquired a 7.6% stake in Robinhood, leading to speculation the former FTX chief executive could purchase the brokerage firm outright, though the company later denied a potential acquisition being on the table.

BlockFi is now looking to cash in on the collateral as the likelihood of Alameda repaying its loan is very slim. 

Two-thirds of staff will be laid off

Following the demise of Three Arrows Capital, BlockFi had already cut its staff by one-fifth.

BlockFi now has 292 employees and 82 contractors, according to Joshua Sussberg, a partner at law firm Kirkland & Ellis.

After selling roughly $238 million worth of its cryptoassets to try to remain above water, the company said additional two-thirds of its remaining employees would need to be laid off to save $34 million annually.

The laid-off employees will be paid through the notice period.

$355 million in cryptoassets are frozen on FTX

Court filings revealed BlockFi had “substantial exposure to FTX.” That “substantial” turned out to be $355 million worth of frozen cryptocurrencies now in limbo on the insolvent centralized exchange, Sussberg said in bankruptcy court.

The $355 million is on top of an existing $671 million loan to Alameda — which has already defaulted.

SEC among BlockFi bankruptcy creditors

BlockFi has roughly 100,000 creditors and $1 billion to $10 billion in liabilities and assets, the latest bankruptcy filings show. Among them is the SEC, which the troubled lender is said to owe roughly $30 million.

The lender previously reached a $100 million settlement with the SEC after the regulator said BlockFi failed to register yield-bearing products as securities earlier this year. The settlement, in an industry first, included a provision for the firm to stop offering such accounts to US clients. 

As its largest creditor, per filings, Ankura Trust owes BlockFi $729 million.

Emphasis on transparency

Meanwhile, FTX’s new CEO John Jay Ray III dubbed internal mismanagement of the exchange “a complete failure.”

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” Ray said in a statement. 

Opaqueness didn’t apply to BlockFi’s own bankruptcy, according to filings.

“BlockFi was forthright about what it would and would not do with funds on its platform — in stark contrast to others reported to have done the opposite,” the filings said.

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the On the Margin newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.


Upcoming Events

Salt Lake City, UT

MON - TUES, OCT. 7 - 8, 2024

Blockworks and Bankless in collaboration with buidlbox are excited to announce the second installment of the Permissionless Hackathon – taking place October 7-8 in Salt Lake City, Utah. We’ve partnered with buidlbox to bring together the brightest minds in crypto for […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Unlocked by Template.png


With the spot ETH ETF approval, the institutions are coming. stETH - given its dominance in marketshare, existing liquid market structures, and highly desirable properties - is poised for institutions.


Trump insiders say he will dismantle the anti-crypto army within an hour of taking office, but the campaign has been quiet about how it plans to do so


Plus, Solana set a record for weekly unique active addresses on the network last week


Launching cryptocurrencies the old fashioned way may soon make a return


Kraken and CertiK brought their beef to social media after Kraken said researchers exploited $3 million through a bug


NVIDIA’s historic run is only deepening the divide between mega-cap tech stocks and the rest of the market.