BlockFi’s Big Payback: Crypto Payouts Kick Off After Bankruptcy Saga!

Bankrupt crypto lender BlockFi has announced the initiation of interim cryptocurrency distributions to its creditors, a process set to commence this month in partnership with Coinbase. This development is a significant milestone in BlockFi’s journey towards recovery and marks a pivotal moment for its stakeholders.

According to BlockFi’s recent communications via Twitter and a blog post, the distribution will be executed in batches over the coming months. Eligible clients will be informed via an email linked to their BlockFi account. However, the company noted that non-US clients would not be able to receive funds at this stage due to regulatory constraints affecting them.

BlockFi’s path to this point has been tumultuous, catalyzed by its November 2022 Chapter 11 bankruptcy filing amid the broader collapse of the crypto exchange FTX. Founded in 2017 by Zac Prince and Flori Marquez, BlockFi was once a rising star in the crypto space, offering high-yield interest accounts and crypto-backed loans. The company had previously raised substantial funds, including a $350 million Series D round in March 2021, bringing its valuation to $3 billion.

BlockFi faced regulatory hurdles as early as July 2021 when several U.S. states issued cease-and-desist orders over its interest accounts, labeling them unregistered securities. These challenges compounded in February 2022 when BlockFi settled with the SEC for $100 million over issues related to its lending product. However, the direct impact of FTX’s downfall in November 2022, where BlockFi had over $1.2 billion in assets intertwined with FTX and Alameda Research, precipitated its bankruptcy.

Restructuring and Creditor Repayment Plan

Throughout the bankruptcy proceedings, BlockFi’s executives attributed their financial distress primarily to their association with FTX and Alameda. Following a restructuring plan that received 90% approval from its creditors, BlockFi emerged from bankruptcy in October 2023, setting the stage for the current repayment process.

With the assistance of Coinbase, BlockFi will begin the fund distribution with wallet customers and subsequently include BlockFi Interest Account (BIA) and loan customers. The recovery range for BIA holders is projected between 39.4% to 100%, contingent on the resolutions of the FTX bankruptcy and the valuation of BlockFi’s stake in Robinhood.

As of July 2024, while wallet customers have started to see withdrawals, BIA and loan customers are still in anticipation of their funds. The ongoing FTX legal proceedings continue to introduce variables that could affect the timing and amount of these distributions.

This step by BlockFi represents a crucial effort to resolve its obligations and restore trust within the crypto community, amidst the broader challenges still facing the industry.