Web3 Weekly: FTX’s ‘Death Spiral’ Continues To Leave A Sea Of Wreckage

This is a weekly feature that will look back at the week that was in crypto, blockchain and Web3, and offer insights and analysis. Check out our previous column here.

This week started off like the past few have and many will in the future — with a crypto company admitting financial difficulties thanks to the spectacular collapse of Sam Bankman-Fried’s FTX exchange.

Crypto lender BlockFi filed for Chapter 11 bankruptcy on Monday. In July, FTX gave BlockFi a $400 million revolving credit facility that included an option to buy BlockFi for up to $240 million. Earlier this month, BlockFi suspended withdrawals on its platform after FTX’s troubles came to light.

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While also blaming crypto’s down year for the company’s predicament, Mark Renzi with the Berkeley Research Group — the proposed financial advisers for the company — emphasized FTX’s implosion was “a major cause” in BlockFi’s bankruptcy.

The 41-page filing described FTX’s fall as a “death spiral,” and BlockFi’s inability to access its credit facility forced the company to seek bankruptcy protection.

BlockFi had already drawn $275 million on the facility, and on Nov. 8 requested an additional $125 million, the filing states. However, by that time news of FTX’s troubles had spread and FTX did not honor the request. Shortly thereafter, Bankman-Fried’s other trading firm Alameda Research defaulted on $680 million of collateralized loan obligations it owed to BlockFi.

A new path forward

BlockFi is now seeking to “stabilize” its business through restructuring, and Renzi’s affidavit states the company does “not face the myriad issues apparently facing FTX.” However, it seems like a hard row to hoe as the FTX bankruptcy likely will only muddle up BlockFi’s attempts.

It’s a far descent for BlockFi, which raised $350 million at a valuation of $3 billion in March 2021 and followed that up four months later with a $500 million round at a reportedly $4.8 billion valuation.

More stories about FTX’s wave of destruction will continue to follow in the next several months. On Tuesday, The Information reported some Web3 unicorn companies FTX invested in at high valuations may have trouble attracting investors willing to pay the same for FTX’s stakes.

The story really is just beginning.

Read our coverage of all the FTX-related events and more below:

Illustration: Dom Guzman

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