Axios Pro: Fintech Deals

November 29, 2022

Axios Pro Exclusive Content

Happy Tuesday, readers.

Situational awareness: India is launching a pilot program for the introduction of a retail digital currency, starting on Dec. 1, according to its central bank.

1 big thing: BlockFi's bad loan

Illustration: Annelise Capossela/Axios

Crypto lender BlockFi was taken down by exposure to FTX and Alameda Research, the latter of which defaulted on $680 million of collateralized loan obligations, according to a bankruptcy filing.

Why it matters: Despite claims of transparency and decentralization in crypto, the intertwined balance sheets and opaque nature of crypto lending have led to contagion in the ecosystem, Ryan writes.

State of play: The filing from Mark Renzi of Berkeley Research Group — BlockFi's proposed financial adviser in the case — breaks down the events leading to its bankruptcy into two acts: the first related to the collapse of Luna and Three Arrows Capital (3AC), and the second due to the fall of FTX.

  • At the time of its collapse, 3AC was one of BlockFi's largest borrower clients and led to losses of around $80 million, the company said in July.

Yes, but: That's nothing compared to BlockFi's exposure to FTX and sister firm Alameda Research.

  • Despite a series of margin calls and recalls of open-term loans with FTX and Alameda, the filing claims BlockFi could not avoid being caught up in the collapse of those firms.
  • In early November, BlockFi made a borrowing request on its loan agreement with FTX, which was not honored.
  • Alameda also defaulted on approximately $680 million of collateralized loan obligations with BlockFi, according to the filing.

Between the lines: BlockFi received unaudited quarterly financial statements and crypto wallet addresses from Alameda as part of its credit evaluation process, the filing notes.

  • It also had regular dialogue with Alameda staff, who "made ongoing representations regarding its financial standing, significant equity capital, and unencumbered assets on Alameda’s balance sheet."

The intrigue: In a followup complaint, BlockFi said it is suing Emergent Fidelity Technologies, a vehicle owned by FTX founder Sam Bankman-Fried, in an effort to seize shares in Robinhood that were allegedly pledged as collateral days before the exchange collapsed.

  • Bankman-Fried bought a 7.6% stake in Robinhood earlier this year.

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