The cryptocurrency lender has been closely associated with FTX, the exchange platform that just left ten billion holes. The fearful contagion of traditional finance has not occurred, while questions are being raised about the fate of decentralized finance
Another cornerstone of crypto finance has fallen. Cryptocurrency lender BlockFi is the latest casualty in the great crypto winter, which has been getting worse since the FTX crash. After all, the two realities are linked: the exchange saved BlockFi from collapse just a few months ago, when its founder was still Sam Bankman Fried He was the equivalent of the legendary banker JPMorgan And his rescue of the American monetary system.
Founded in 2017, BlockFi has been the dean of the industry, at least by very small cryptocurrency standards. according to Wall Street Journal Customers deposited between $14 and $20 billion, and the company had lent about $7.5 billion. Meanwhile, he has raised $1 billion in funding from investors like Dan Loeb, Tiger Global, and Bain Capital Ventures, who see BlockFi as a pioneer in the world of so-called DeFi, or decentralized finance.
And then winter came: the overall macroeconomic situation — severely aggravated by the Russian invasion of Ukraine and rising interest rates, with the end of “free money” and disastrous consequences for some companies — also affected cryptocurrencies, which have been plagued by a series of high-profile bankruptcies and hacks. Over the past year, cryptocurrencies have lost more than two-thirds of their value. So companies like BlockFi asked for help from companies like FTX, which in July granted them a 400 million line of credit — accompanied by an option to buy.
When the FTX case broke, BlockFi quickly suspended operations, blocking withdrawals and telling customers to make no more deposits. Meanwhile, he said he had “significant exposure” to FTX and its subsidiary Alameda Research, which Bankman-Fried and its partners have used to invest client money in speculative, high-risk deals. In fact, BlockFi provided loans to Alameda, backed in part by FTX-owned cryptocurrency. Until she, too, was forced to file for bankruptcy in the Bahamas, officially falling into the hole made by her rescuer’s collapse.
If the news is bad for the world of cryptocurrency, in a very deep crisis, it should be noted that all these explosions have not particularly affected traditional finance (TradFi in TradFi jargon). Despite the big names swirling around on these facts — BlackRock was also among the FTX investors — Wall Street was by no means overexposed to the large crypto bubble, which once seemed capable of hitting the markets.
while in, Changpeng “CZ” Zhao – founder of Binance, the world’s first trading platform – aims to establish itself as the true JP Morgan of cryptocurrency by proving that it owns the coins and setting up a large bailout fund, from $1 billion to $2 billion, to help crypto-companies in difficulty. A bit like Bankman-Fried did with FTX. And we must remember that Czechoslovakia itself at least accelerated the collapse of the competing platform, which became the second in the world.
What is not clear at the moment is what the future holds for crypto finance. There are those who are confident that the reality-Ponzi collapse, perhaps accompanied by the next regulatory tightening, will “clean up” a promising sector. Some crypto-asset holders are even rejoicing in the collapse of centralized entities such as FTX and BlockFi, which effectively contradicts the promise of decentralized finance. Only, as analysts at JP Morgan (the bank, this time) point out, DeFi protocols — banks and lenders that rely solely on algorithms — still depend a lot on the exchanges’ infrastructure. Which at the moment has not very rosy prospects.