The FTX crash continues to reverberate from coast to coast, as New Jersey-based BlockFi — which FTX rescued in June — has told clients it will “restrict the platform’s activity” and California regulators have announced an investigation.
“We, like the rest of the world, found out about this situation via Twitter,” BlockFi wrote in a message posted on social media late Thursday. “We were shocked and appalled by the news of FTX and Alameda.”
BlockFi says that because the status of FTX, FTX US, and Alameda is unclear, “we cannot run business as usual.” As a result, platform activity – including withdrawals – will be limited. The company has also discouraged clients from making deposits in hosted wallets and interest-bearing accounts.
While BlockFi has promised to communicate as much as possible, it has acknowledged that it will be less frequent than what its customers and stakeholders are used to.
In July, BlockFi offered employee purchases to reduce staffing after laying off 20% of its staff in the previous month. These acquisitions came weeks after it completed a $400 million loan and potential acquisition terms with FTX in June.
Yesterday, we signed definitive agreements, subject to shareholder approval, with FTX US to:
1. A US$400 million revolving credit facility subject to all customer funds, and 2. Option to acquire BlockFi at a variable price of up to $240 million based on performance incentives.
BlockFi claimed to have a strong balance sheet at the time and described itself as well-positioned for long-term stability.
“This credit agreement with FTX provides BlockFi with access to capital that enhances our balance sheet and platform strength,” BlockFi wrote on Twitter.
BlockFi has a strong balance sheet and is well positioned for long-term stability as we continue business as usual. This credit agreement with FTX gives BlockFi access to capital that enhances our balance sheet and the strength of the platform.
The BlockFi announcement came just hours after California’s Financial Protection Bureau turned to the latest entity – after Texas, New Jersey and the Securities and Exchange Commission – to open investigations into FTX.
“We encourage consumers to be aware of the risks of investing in volatile crypto assets,” wrote the Department of Financial Protection and Innovation. “Consumers and investors should understand that crypto assets are a high-risk investment and should not expect to be compensated for any losses.”
The agency warned investors that many crypto-asset providers, including FTX, may not have disclosed the risks clients face when depositing assets on these platforms.
“Crypto-asset providers are not subject to the same rules and protections as banks and credit unions, which must have deposit insurance,” the agency said, adding that it takes its supervisory responsibilities seriously.
“We expect anyone offering securities, loans, or other financial services in California to comply with our financial laws,” they said.
At its peak, BlockFi’s high rates of return served as an attractive lure for DeFi developers looking for passive income. Clients were offered up to 9.3% APY (Annual Percentage Return) on some crypto and stablecoins.
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