- BlockFi has signed a term sheet with FTX involving a $400 million credit facility and an option to buy.
- Depending on BlockFi’s performance in the coming months, FTX could acquire the firm for $240 million.
- BlockFi ran into financial difficulty following the tragedy of Celsius and other crypto lending firms imploding.
After weeks of speculation, FTX and BlockFi have put ink to paper in a deal that includes a loan and an option to buy. The deal comes as a relief to BlockFi customers but investors are counting their losses.
FTX to the rescue
FTX US, a leading cryptocurrency exchange, has struck a deal with troubled BlockFi to bail the company out of dire straits. Both firms signed definitive agreements with the terms of the deal subject to ratification by shareholders.
Under the terms, FTX will advance a revolving credit facility of $400 million to BlockFi and will retain the option to “acquire BlockFi at a variable price of up to $240 million based on performance triggers”. The total package of the deal is worth $680 million and is a huge leap from the paltry $25 million that some pundits anticipated.
BlockFi was valued at $3 billion in 2021 and was close to completing a $500 million funding round that would have given it a $5 billion valuation. Twelve months down the line, the firm is worth only a fraction of the amount with a CNBC report suggesting that FTX would acquire the company for $25 million.
The new deal will no doubt come as a relief to BlockFi customers as the statement revealed that client funds will not take a haircut. Zac Prince, BlockFi CEO adds that FTX products are “highly complementary” and clients should “anticipate enhancements to our services through increased collaboration.”
“Ultimately, we found a great partner in FTX US, who shares our commitment to clients,” said Prince. “This represents the best path forward to all BlockFi stakeholders and the crypto ecosystem as a whole.”
Tearing at the seams
According to Zac Prince, BlockFi’s CEO, things began to fall apart for BlockFi after Celsius and Three Arrows Capital imploded in the face of grim macroeconomic factors. Prince noted that BlockFi suffered losses of nearly $100 million from the 3AC incident and will be pursuing reliefs against the crypto hedge fund.
For BlockFi, the fallout was huge. The firm was nearly forced to halt withdrawals for customers and took the drastic decision to lay off 20% of its workforce. To stay afloat, BlockFi announced the increase of deposit rates and eliminated the perks of one free withdrawal per month that customers enjoyed but increased interest rates for BTC, ETH, and stablecoins after the deal with FTX.
FTX had previously provided a $250 million emergency credit line to BlockFi as Sam Bankman-Fried assumed the role of a lender of last resort for troubled firms. Embattled Voyager received a bailout worth $500 million from Alameda Research, Bankman Fried’s trading firm.