Crypto lending platform BlockFi addressed the rumors of a potential purchase from major crypto exchange platform FTX. Initially reported by U.S. news outlet CNBC, the company was allegedly being bought by FTX at a $25 million valuation, a 99% discount from its nearly $5 billion 2021 valuation.
According to BlockFi’s CEO Zac Prince, the company has signed an agreement with FTX US. Currently, under shareholder approval, this will provide BlockFi with a $400 million credit facility to ensure all clients have access to their funds and contemplate an option to acquire.
Unless what CNBC reported, this purchase option has a variable price of up to $240 million, almost ten times what initial reports were claiming. The final purchase value will depend on BlockFi’s performance and other factors. Prince said:
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 interest rates, effective today.
BlockFi seeks this deal with FTX US, as the CEO confirmed, due to the current downside trend in the crypto market. Similar to other companies in the industry, the crypto lending platform is suffering from the consequences of the collapse of the Terra ecosystem and investment firm Three Arrows Capital (3AC).
The company claims that they have no exposure to the cryptocurrency they did issue a loan to the failed investment firm, but these events triggered an “uptick in client withdrawals”. One after the other, events in the crypto space fueled fear amongst investors that decided to take their funds out of platforms like BlockFi.
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, which is a fraction of losses reported by others.
What The Future Holds For A FTX-BlockFi Partnership
BlockFi saw an $80 million loss from their 3AC exposure. The company claims that they have no “further exposure” to the firm and claims they will be able to absorb losses “with no impact to client funds”.
In that sense, Prince and BlockFi executives said they rejected other offers because client funds would have “taken a haircut”. The executive said FTX US has become a “great partner” to the company and that they share the same respect for their users and values.
The funds provided by FTX US will enable the crypto company to improve its services and products. Unlike other companies affected by the Terra and 3AC fallout, BlockFi never halted users’ withdrawals. Prince concluded:
The FTX US platform and products are highly complementary to BlockFi and we anticipate enhancements to our services through increased collaboration (…). To date our clients have received over $575M in interest, including >$10M today, from BlockFi and have never taken a loss of principal.