FTX sat on the sidelines while shitcoin lenders and DeFi Ponzis collapsed – until now.
Either that or, rumor has it, FTX was secretly involved to create an ideal situation to be able to buy out competitors at low prices.
However, there is no hard evidence for an active involvement by FTX to bring down markets. The bailout, on the other hand, is real.
If FTX acquires BlockFi, the deal would likely value the broken lender at around $250 million, according to insiders.
Zac Prince, BlockFi’s CEO, had tweeted earlier: “Today BlockFi signed a term sheet with FTX to secure a $250 million revolving credit facility that gives us access to capital that further bolsters our balance sheet and the strength of our platform.”
Meanwhile, Sam Bankman-Fried, CEO of FTX, clarified, “Today we are injecting $250 million into BlockFi and partnering with them so they can navigate the market from a position of strength.”
Over the past few weeks, the crypto market has been on a downward trend. While many saw an opportunity to buy bitcoin during the dip, the crash also brought about the extinction of Terra/Luna and many other shitcoins.
This shocked DeFi companies, mainly those which promised high yields but invested client funds in highly risky crypto-lending constructs.
BlockFi, Celsius, Voyager, Babble Finance and cryptocurrency hedge funds, such as Three Arrows Capital and others did not survive the market crash of Summer 2022.
What can we expect from FTX?
It is not a sure thing, but with the recent moves we can say that it has put itself in a position of power. According to Bankman-Fried, BlockFi “successfully eliminated at-risk counterparties preemptively,” and the company acted decisively by “eliminating problematic counterparties before they become a problem and adding cash before it is needed.”
And yes, by “problematic counterparties” he means Celsius and 3AC.
Zac Prince has argued that this can be seen as “a win all around,” saying that,
“Throughout the market volatility of the past few weeks, I am incredibly proud of the performance of our team, platform, and risk management protocols.”
Today’s announcement reinforces “BlockFi’s commitment to serving its clients and ensuring their funds are protected “
Now, whether $250 million is enough for a company of that size is not a sure thing. Most optimistically, at least for its customers, it is.
One way or another, the two companies are eager to work together.
In Prince’s words: “This agreement also unlocks future collaboration and innovation between BlockFi and FTX as we work to accelerate prosperity around the world through cryptographic financial services.”
Bankman-Fried says FTX is “excited to partner with BlockFi to deliver industry-leading products.”
What would happen if BlockFi continued to lose money? Would FTX jump at the chance to acquire the company for a fraction of its current value?
It should be recalled that in February this year, BlockFi was fined $100 million due to its high-yield interest accounts, which were deemed to be security products by the U.S. Securities and Exchange Commission.
The SEC has made more clear that they view shitcoins as unregulated securities and that exchanges offering these such as Coinbase might could face regulatory consequences soon.
The events make clear that shitcoins are fragile, risky and not a serious investment. When markets don’t go up, providers which are over-leveraged will blow up and leave clients empty-handed.