key takeaways:
- BlockFi’s CEO, Zac Prince, allegedly ignored risk management warnings about lending to Alameda Research.
- The court filing indicates that BlockFi’s collapse was not solely caused by the downfall of Alameda/FTX
In the fast-paced world of cryptocurrency, partnerships and collaborations can make or break a company’s success. Recently, BlockFi, a prominent crypto lending platform, has been making headlines for allegations that its CEO disregarded warning signs associated with its partnership with FTX.
Recent court documents have unveiled that Zac Prince, the CEO of BlockFi, a bankrupt crypto lending firm, allegedly neglected warnings from the company’s risk management team regarding their exposure to FTX and Alameda Research.
These documents, filed on behalf of former BlockFi customers, claim that Prince blatantly disregarded multiple warnings from the risk management team concerning lending to Alameda Research, a sister entity of FTX. Despite the concerns raised, BlockFi reportedly lent approximately $217 million to Alameda Research by August 2021.
The bankruptcy filing revealed that BlockFi had about $1.2 billion in assets tied to FTX and Alameda, further highlighting the magnitude of the situation.
BlockFi’s risk management team received information that Alameda Research’s balance sheet primarily consisted of around “7 billion unlocked FTT and 11 billion total including locked tokens based on unaudited financials.”
This revelation raised concerns within BlockFi. However, CEO Zac Prince allegedly dismissed the team’s worries and urged them to become comfortable with Alameda being a borrower on the scale of Three Arrows Capital, but with FTT and other collateral types rather than GBTC shares.
Despite the alarm bells, Prince seemingly downplayed the risks associated with lending to Alameda.
The filed document also strongly criticizes BlockFi’s underlying business model, labeling it as fundamentally flawed. It underscores the company’s decision to take on excessive risks, which ultimately led to significant losses.
The filing disputes previous assertions that BlockFi debtors were in a better position compared to FTX debtors, challenging the notion.
Furthermore, it highlights a notable discrepancy: despite presenting itself as similar to regulated and insured small banks, BlockFi was not actually a regulated lending institution.
The filing attributed significant losses to the collateralized loan practices of FTX, specifically involving FTT tokens. As the price of FTT plummeted during the Chapter 11 filing and amid liquidity issues, various firms, including BlockFi, reportedly suffered substantial losses.
