An Update On BlockFi's Slow Collapse

As covered in CoinSnacks last week, BlockFi was “up for grabs” with multiple parties trying to acquire the distressed, fetid assets of the crypto lender.

Having been a VC darling, sporting a $5 billion valuation with plans to go public in July 2021, the company ended its ordeal with a term sheet to be acquired by FTX at a value of up to $680 million.

The details of the deal are as such:

• A $400 million revolving line of credit facility

• An option to acquire BlockFi for up to $240 million based on performance triggers

If we are to believe early reports around the deal, the equity valuation could go for as low as $25 million if performance metrics are not hit. If you are interested in getting into the nitty gritty details of the deal, read this quick thread.

TLDR: How Did We Get Here Again?

As a crypto lender, BlockFi was hit hard by the recent liquidity crisis in the markets. The company apparently experienced ~$80 million in losses due to an overcollateralised loan to 3AC.

Also, it is worth remembering that nearly the entire business model of BlockFi is to provide loans to individuals looking for leverage. But when leverage is down in the markets (like it is now), it hurts the company’s revenue.

Combine these two things together and customers are going to begin removing assets from the company… which is exactly what they did. Wrap this all together and you have a recipe for losses and expenses quickly outpacing and revenues.

Why is FTX Doing the Deal?

Well, beyond the stated reasons from SBF/FTX for wanting to help backstop the industry, stabilize the market, and protect customer assets, there are still several attractive (and profitable) motivations.

• FTX acquires all of BlockFi’s tech stack for little to nothing

• FTX acquires all of BlockFi’s 1 million-plus users

Let’s also not discount the deal from a marketing perspective. FTX now looks like an exchange that will protect customer’s interests at all costs. Beyond that, companies raising money will clamor to get FTX Ventures on their cap table, with the belief that FTX will support them in problematic times.

Overall, we have given some flak in the past to SBF/FTX for trying to be everywhere at once, but we have to give credit where credit is due. FTX’s commitment to BlockFi’s client base rather than their shareholder base should be lauded. BlockFi’s CEO, Zac Prince stated the company was “presented with various unattractive options where client funds would take a haircut or be behind a lender in the capital stack,” and therefore went with a deal from FTX where retail capital would be protected over VC investment.

What’s the Future Hold?

It seems we have begun to see the beginning of the end in regards to the crypto contagion and liquidity crisis.

Companies that can be saved are being saved. Those that can’t are going bust.

And some are making what could potentially turn out to be legendary deals.