BlockFi Discloses $600M “Credit Risk” Amid Turmoil

Cryptocurrency lending startup BlockFi has provided further insights regarding its financial position. According to a quarterly update published on Thursday, the platform faced a $600 million credit risk as of the end of June 2022.

BlockFi Under Scrutiny

BlockFi’s financial position has come under public scrutiny following a period in which many centralized crypto lenders, notably Celsius and Voyager Digital, have withheld customer funds and filed for bankruptcy.

Like competitors, BlockFi’s business revolves around collecting cryptocurrency deposits from retail and institutional clients in exchange for paying a stipulated interest rate. BlockFi in turn lends these assets to third parties, primarily including brokerages and trading desks, to generate the necessary yield.

The recent fallout of centralized crypto lenders revolved around platforms offering undercollateralized loans to supposedly reputable clients. BlockFi Thursday’s report confirms that the company still faces this peculiar credit risk.

“We require many, but not all, borrowers to post varying levels of collateral depending on the borrower’s credit profile and the size of the loan portfolio,” the firm noted. While BlockFi’s borrowing clients owed $1.8 billion, the company faced a $600 million credit risk if the clients failed to repay issued loans.

BlockFi Still Holds $3.9B in Deployable Assets

Although the New Jersey-based company still faces some credit risks, it still holds up to $3.9 billion in deployable assets. This robust holding potentially provides leeway for the company to efficiently manage its financial standing and fulfill its obligation to customers.

According to the report, a majority (46%) of the $3.9 billion held by BlockFi as deployable assets had come from retail and institutional borrowers. A further 35% was being held with third-party custodians and wallets, while 10% of the assets had been posted as collateral for individual borrowings. The fund also includes five percent of cash assets reportedly held by banks and brokers, and a final four percent used for staking and mining-related businesses.

Meanwhile, BlockFi had also entered a $640 million deal, including a potential acquisition by Sam Bankman-Fried-owned FTX. The deal provides the required cushion against existing credit risks and could perhaps ensure that the startup remains in business.