Crypto exchange FTX bails out lending platform BlockFi

FTX chief executive Sam Bankman-Fried has bolstered the stumbling $900bn crypto industry with his second bailout of a struggling digital assets company in as many weeks.

The 30-year-old chief announced on Tuesday that his crypto trading platform FTX has extended a $250mn loan to BlockFi. Just last week, Bankman-Fried helped crypto broker Voyager Digital pull back from the brink with a loan that totalled about $485mn in cash and bitcoin.

The rescues came as the crypto industry has tried to restore confidence during a period of accelerating pressure on the price of digital assets such as bitcoin, which has pushed even some of the biggest market participants in the industry into distress.

One of the critical principles of cryptocurrencies is their independence from authorities such as central banks. But billionaire Bankman-Fried is building a pivotal role akin to the authorities that rescued banks in the 2008 financial crisis, analysts said.

“Sam became a lender of last resort,” said Anatoly Crachilov, chief executive of London fund manager Nickel Digital Asset Management.

“If you have a few ‘Lehman’ events at the same time, concentrated, then it could impose crypto winter for a very extended period of time. FTX has the balance sheet to support these businesses, and it’s in their long-term vested interest to see this ecosystem survive.”

The heavy drop in digital asset prices has claimed a growing number of casualties in the past month, including stablecoin TerraUSD and its sister token luna, as well as lending platform Celsius, which stopped customers from withdrawing their assets in an attempt to survive. Since hitting an all-time high in November, bitcoin has dropped about 70 per cent, and rival token ether has lost roughly four-fifths of its value.

The loans to BlockFi and Voyager marked a step-up in the scale of support and the prominence of the groups in need of aid. At the start of last week lending platform BlockFi cut about a fifth of its staff, citing a “dramatic shift in macroeconomic conditions”.

Last week, it also liquidated at least some of positions of Three Arrows, after the crypto hedge fund failed to meet demands from BlockFi for more funds to cover its digital currency bets.

On Tuesday, BlockFi said it had agreed a $250mn revolving credit facility from FTX, although it did not disclose terms or the rate of interest. BlockFi said FTX’s claims on the facility would be subordinate to all client balances if BlockFi were to fail.

Bankman-Fried said BlockFi had no debt or risk from Three Arrows or Celsius.

“Sometimes leadership means acting decisively and that’s what BlockFi did: removing troublesome counterparties before they become a problem, and adding cash before it was necessary,” Bankman-Fried wrote on Twitter.

He added: “BlockFi is financially strong; all operations are normal, as they always have been, and assets are safe.”

Bankman-Fried added that he considered himself to have an important role in supporting struggling market participants even in cases where FTX was not involved. “I think that’s what’s healthy for the ecosystem, and I want to do what can help it grow and thrive,” he wrote.

Voyager agreed a credit facility of $200mn cash and USDC — a popular stablecoin in the crypto industry — and a second for 15,000 bitcoin, equivalent to roughly $285mn. Both facilities expire at the end of 2024 and have a 5 per cent annual interest rate.

Zac Prince, chief executive of BlockFi, said the deal would provide his company with “access to capital that further bolsters our balance sheet”.

“Our team is battle tested and has weathered many storms over the years, which only makes us stronger and more resilient as we navigate today’s market environment,” he added.

As the industry has grown, large crypto exchanges have repeatedly stepped in to bail out projects or companies that run into trouble.

Last year, FTX supplied $120mn in debt financing to Liquid, a crypto exchange that lost about $90mn in crypto tokens to hackers. FTX later acquired the smaller exchange.

This year, Binance, the world’s largest crypto exchange by volume, led the bailout of Sky Mavis, the company that runs the popular play-to-earn Axie Infinity game, which was hacked to the tune of more than $600mn.

“We strongly believe Sky Mavis will bring a lot of value and growth for the larger industry and we believe it’s necessary to support them as they work hard to resolve the recent incident,” Changpeng Zhao, chief executive of Binance, said at the time.

This article has been amended to correct the figure relating to the Axie Infinity hacking

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