Silvergate to Repay $9.85 Million to BlockFi in Reserve Account

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Key takeaways:

  • Silvergate Bank was ordered to pay crypto lender BlockFi $9.85 million by a US bankruptcy court.
  • The $10 million placed in the bank’s reserve account was released after negotiations between BlockFi and Silvergate.

A bankruptcy judge ordered Silvergate Bank to transfer nearly $9.85 million to cryptocurrency lender BlockFi days after the bank stated that it was “reevaluating its business” and might be “less than well-capitalized,” prompting a flurry of companies to sever ties with the bank.

According to a March 3 filing, Silvergate Bank has been mandated to give $9.85 million back to BlockFi as part of the latter company’s ongoing bankruptcy procedures.

According to that court document, BlockFi and Silvergate signed a contract in August 2020 under which Silvergate would serve as a depository institution to process specific ACH transactions. BlockFi decided to create a reserve with $10 million in November 2021.

According to the agreement, the account would close 90 business days following the last pertinent transfer, giving BlockFi full access to the money. Silvergate is now required to release $9.85 million from the reserve account as a consequence. The balance of $150,000 may be held in the savings account.

A component of BlockFi’s ongoing bankruptcy proceedings is the judicial order. In November 2022, the cryptocurrency lending business filed for insolvency. It pays around $1 billion and $10 billion to its more than 100,000 creditors.

Silvergate claimed that its liability to BlockFi was less than $20 million after BlockFi declared bankruptcy in November 2022. Additionally, it stated that it had no investments in BlockFi and was not acting as a custodian for the SEN Leverage debts that BlockFi had secured with Bitcoin.

The two firms did, however, continue to be tight. On November 10, BlockFi referred to Silvergate as a “banking partner” and stated that due to Silvergate’s celebration of a holiday, ACH and wire processing would be suspended for three days. Due to FTX’s separate collapse, BlockFi declared later that withdrawals would be suspended forever.

Due to numerous lawsuits and investigations, many well-known figures in the US cryptocurrency industry have declared they are cutting links with Silvergate Bank or stated they have no affiliation with the bank. Companies have revealed similar actions like stablecoin issuers Paxos and Circle, Mike Novogratz’s Galaxy Digital, Gemini, and BitStamp, who have also partnered with crypto banks. According to MicroStrategy, it had no assets at the cryptocurrency-focused bank Silveragte Capital.

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