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Settling the score: FTX and BlockFi resolve disputes with $874 million agreement

ftx and blockfi agreement

In the aftermath of their respective financial collapses in 2022, FTX and BlockFi, two significant players in the cryptocurrency market, have reached a substantial settlement agreement. Detailed in court documents, the settlement involves FTX agreeing to pay BlockFi up to a staggering $874 million. This resolution of disputes, however, is not yet finalized and is pending approval by U.S. Bankruptcy Judge John Dorsey, based in Wilmington, Delaware as we read in Reuters.

The genesis of this settlement can be traced back to the legal battles that erupted between FTX and BlockFi in 2023. Both companies, struggling under the weight of bankruptcy, sought to recover substantial sums of money they had loaned to each other prior to their financial downfalls in November 2022.

As part of the proposed settlement, FTX has committed to an upfront payment of $250 million to BlockFi. The remaining portion of the settlement is conditional, hinging on FTX's success in repaying its own customers as it navigates the complexities of bankruptcy proceedings.

Before the market crash in 2022 exposed a series of financial missteps, FTX and BlockFi shared a closely knit business relationship. BlockFi extended loans to Alameda Research, an affiliate hedge fund of FTX, and also turned to FTX for critical financial support during the volatile cryptocurrency market in the summer of 2022.

In the terms of the settlement, FTX may end up paying BlockFi a total of up to $689 million in relation to the loans given to Alameda Research. However, this figure includes a guaranteed payment of $250 million, with the balance contingent upon FTX's ability to prioritize and settle its own customer repayments and other creditor obligations. This structure of the settlement is outlined in detail in the bankruptcy court documents filed in both Delaware and New Jersey.

Further complicating the financial dynamics between the two companies, FTX has also agreed to compensate BlockFi with an additional $185.3 million. This sum is meant to cover the losses that BlockFi incurred in its FTX trading accounts during the latter's sudden collapse in 2022.

Despite FTX's intentions to fully reimburse its customers, the company's attorney expressed uncertainty about this outcome as recently as January.

On the other side of the settlement, BlockFi had previously agreed to repay FTX up to $275 million from a rescue loan provided in 2022. However, this repayment is dependent on BlockFi's ability to first fully compensate its own customer base.

BlockFi faces its own set of challenges, especially in terms of fully satisfying its customers who hold interest-bearing accounts. The company has projected that these customers might only receive a fraction of their invested value, estimating a potential return ranging from 39.4% to the full 100% of their account values.

As a key part of the negotiated settlement, BlockFi agreed to drop its lawsuit related to 56 million Robinhood shares. These shares, initially pledged as collateral for loans from Alameda, were seized by the U.S. Department of Justice following the arrest of FTX's founder, Sam Bankman-Fried.

Bankman-Fried, embroiled in controversy and legal challenges, was convicted in November 2023 of misappropriating a massive $8 billion from FTX's customers. His sentencing is scheduled for March 28, and he is expected to challenge his conviction through an appeal.



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