Crypto exchange FTX bails out lending platform BlockFi

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

The 30-year-old chief executive of crypto trading platform FTX has extended a $250mn loan to BlockFi, he announced on Tuesday. Just last week, he also helped crypto broker Voyager Digital to pull back from the brink with a loan that totalled around $485mn in cash and bitcoins.

The moves come as the crypto industry tries 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 key principles of cryptocurrencies is their independence from authorities such as central banks. But billionaire Bankman-Fried is building up a pivotal role akin to the authorities that rescued banks in the 2008 financial crisis.

“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 last month, including stablecoin terra and its sister token luna, as well as lending platform Celsius, which stopped customers from withdrawing their assets in a bid to survive. Since the all-time high last 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 mark a step-up in the scale of support and the prominence of the firms in need of aid. At the start of last week lending platform BlockFi was forced to cut around a fifth of its staff, citing a “dramatic shift in macroeconomic conditions”.

Last week it was also forced to liquidate 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 it 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 on Tuesday. 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 is 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 tweeted.

Voyager agreed a credit facility of $200mn cash and USDC — a popular stablecoin in the crypto industry — and a second for 15,000 of bitcoin, equivalent to around $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 his company’s deal would provide the 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 crypto 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.

Earlier 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 over $6mn. 

“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.

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