A forced sell-off and liquidity problems have driven a historic crypto market crash, leaving even the largest funds and platforms unable to hedge the fallout. Huge crypto exchanges were seemingly untouchable before and are now forced to find ways to increase their funds to meet the demand of a crashing market in order to bounce abck when the time is right.
To help crypto companies in need, Sam Bankman-Fried, the millennial billionaire CEO of FTX, one the world’s biggest crypto exchanges, has stepped in offering lifelines.
On Tuesday, crypto lending platform BlockFi announced it had signed a term sheet with FTX to secure a $250 million revolving line of credit. This followed a statement on Friday which revealed that Alameda Research, a quant trading shop founded by Bankman-Fried, had offered crypto broker Voyager Digital a revolving line of credit. Voyager Digital said it had taken the credit line “considering the current crypto market conditions.”
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BlockFi CEO Zac Prince tweeted that “today’s landmark announcement reinforces BlockFi’s commitment to serving its clients and ensuring their funds are safeguarded.”
“The proceeds of the credit facility are intended to be contractually subordinate to all client balances across all account types (BIA, BPY & loan collateral) and will be used as needed,” Prince added.
The proceeds of the credit facility are intended to be contractually subordinate to all client balances across all account types (BIA, BPY & loan collateral) and will be used as needed.— Zac Prince (@BlockFiZac) June 21, 2022
This comes after Prince tweeted on June 16 that BlockFi had to liquidate “a large client that failed to meet its obligations on an overcollateralized margin loan,” just as reports spread that major crypto hedge fund Three Arrows Capital, or 3AC, is facing insolvency. BlockFi also announced last week that it was cutting about 170 jobs.
It seems that Bankman-Fried is following what he preaches. In an interview with NPR that published on Sunday, Bankman-Fried said, “I do feel like we have a responsibility to seriously consider stepping in, even if it is at a loss to ourselves, to stem contagion.”
“Even if we weren’t the ones who caused it, or weren’t involved in it,” he said, “I think that’s what’s healthy for the ecosystem, and I want to do what can help it grow and thrive.”
On Friday, Bankman-Fried told Fortune that amid this downturn, “I do think that, in general, this will be very bad for poorly built or not very useful projects, but much less bad for valuable ones. I don’t think we’ll see sectors die out but we might see some rotate to more sophisticated versions.”
When reached for comment, FTX referred Fortune to Bankman-Fried’s Twitter thread which stated in part that BlockFi has “careful risk management and great leadership,” that it successfully removed at-risk counterparties preemptively, and that it is financially strong, with all operations normal and assets safe.
Alameda declined to comment.
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