New York BlockFi’s CEO, Zac Prince, continued his testimony in a crucial trial against former counterparty Sam Bankman-Fried (SBF), outlining how his lending business was forced to file for bankruptcy because of its ties to Alameda Research and FTX. . Prince gave a thorough explanation of the lending arrangement and the ensuing financial upheaval in court.
Around the end of 2020 or the beginning of 2021, BlockFi and Alameda Research began their lending partnership, which Prince described as having “very robust loan agreements.” Alameda sought further funding in the second quarter of 2021 after receiving a first round of loans, and after speaking with Bankman-Fried, decided to borrow a sizeable sum more.
BlockFi had extended loans to Alameda totaling more than $1 billion by May 2022. BlockFi was forced to ask Alameda Research for a loan after it suffered severe losses as a result of the collapse of the Terra Luna crypto ecosystem.
After Alameda paid back all of its debts to BlockFi, new loans totaling $850 million were issued. Prince stated that BlockFi received quarterly balance sheets from the hedge fund, demonstrating sizable liquid assets and attesting to its solvency, in order to ensure Alameda’s capacity to repay its debts. Alameda also provided collateral, mainly in the form of the native token FTT of FTX and other cryptocurrencies.
Just before Alameda’s bankruptcy in November 2022, the hedge fund still owed BlockFi almost $650 million in unpaid debts. Alameda added FTT, Robinhood, and shares of a Grayscale trust to its collateral to strengthen it even more. In addition to lending, BlockFi also served as a customer of FTX, storing Alameda collateral on the exchange and managing customer assets totaling about $350 million.
In a shocking admission, Prince stated during his testimony that BlockFi lost “a little over a billion dollars” as a result of its connections to FTX and Alameda Research. Less than three weeks after Bankman-Fried’s empire was torn apart, BlockFi eventually made the decision to file for bankruptcy as a result of these losses.
Mark Cohen, Bankman-Fried’s principal attorney, grilled Prince regarding BlockFi’s due diligence procedure throughout the trial. Prince stated that during the lending relationship, BlockFi’s general counsel, three deputy general counsels, and their teams evaluated Alameda’s documentation.
Nicholas Roos, an assistant US attorney, demanded an explanation of BlockFi’s bankruptcy filing decision. Prince acknowledged that if its money on FTX and loans to Alameda had not been “impaired,” the bankruptcy filing may have been postponed. He then added that it might still have been inevitable to file for bankruptcy.
Prince’s second day of testifying was today. He clarified the intricate workings of how cryptocurrency lenders function at the session before. It’s noteworthy that Prince said that BlockFi’s clients were well aware that the business lent their money to other people to earn interest. BlockFi differed from FTX in that this information was openly disclosed in its terms of service and pushed through numerous media, such as podcasts.
Several former FTX officials and staff have testified during the trial regarding whether or not the exchange’s customers were told that their money was being loaned to Alameda. The witnesses claim that they were unaware of this behavior.
The SBF trial keeps giving us a glimpse into the intricate world of bitcoin lending and the potentially disastrous financial repercussions it might have. The situation involving BlockFi is a prime example of the industry’s volatility and the necessity of meticulous due diligence in such deals.