BlockFi sells itself to FTX in earnout-laden deal

Dan Primack at Axios reports that the rumored BlockFi sale to FTX is done. It will be for $240 million at the high end (if earnouts are achieved). There's no word on the low end or the reported (and denied) $25m deal from yesterday.

In any case, the company was raising money at $4 billion valuations and investors poured in more than $1 billion, so huge losses are coming. I'm sure employees were paid in stock as well, so morale will be a real challenge. The brand is obviously badly tarnished as well.

Update: BlockFi CEO Zac Prince now offers details.

Yesterday we signed definitive agreements, subject to shareholder approval, with FTX US for:
1. A $400M revolving credit facility which is subordinate to all client funds, and
2. An option to acquire BlockFi at a variable price of up to $240M based on performance triggers.

This, together with other potential consideration, represents a total value of up to $680M.
We have not drawn on this credit facility to date and have continued to operate all our products and services normally. In fact, we raised interest rates, effective today.

So, what events led up to this deal with FTX US?

Crypto market volatility, particularly market events related to Celsius and 3AC, had a negative impact on BlockFi. The Celsius news on June 12th started an uptick in client withdrawals from BlockFi’s platform despite us having no exposure to them.

In the same week, 3AC news spread further fear in the market. While we were one of the first to fully accelerate our overcollateralized loan to 3AC, as well as liquidate and hedge all collateral, we did experience ~$80M in losses, which is a fraction of losses reported by others.

This represents the full extent of the impact to BlockFi from 3AC. We have no further exposure and the limited losses we did experience will be absorbed by BlockFi with no impact to client funds.

Our 3AC losses will be part of 3AC’s ongoing bankruptcy Bankruptcy Bankruptcy or insolvency is a legal designation occurring when a company or entity are unable to repay debts. While associated mainly with business, individuals can also declare bankruptcy. Persons or companies can voluntarily declare bankruptcy, involving filings with courts by their own accord. This differs from involuntary bankruptcy in which debtors force individuals or companies into bankruptcy by filing a petition with the courts. Bankruptcy can only occur with a court filing. Of note, Bankruptcy or insolvency is a legal designation occurring when a company or entity are unable to repay debts. While associated mainly with business, individuals can also declare bankruptcy. Persons or companies can voluntarily declare bankruptcy, involving filings with courts by their own accord. This differs from involuntary bankruptcy in which debtors force individuals or companies into bankruptcy by filing a petition with the courts. Bankruptcy can only occur with a court filing. Of note, Read this Term case(s) so more info will surely come out as those cases proceed.

It's always 'volatility Volatility In terms of trading, volatility refers to the amount of change in the rate of an index or asset, such as forex, commodities, stocks, over a given time period. Trading volatility can be a means of describing an instrument’s fluctuation. For example, a highly volatile stock equates to large fluctuations in price, whereas a low volatile stock equates to tepid fluctuations in price. Overall, volatility is an important statistical indicator used by many parties, including financial traders, analysts, In terms of trading, volatility refers to the amount of change in the rate of an index or asset, such as forex, commodities, stocks, over a given time period. Trading volatility can be a means of describing an instrument’s fluctuation. For example, a highly volatile stock equates to large fluctuations in price, whereas a low volatile stock equates to tepid fluctuations in price. Overall, volatility is an important statistical indicator used by many parties, including financial traders, analysts, Read this Term' and never 'terrible risk management'. How does an $80m loss on a company that's raised $1 billion lead to a firesale? This is certainly not the whole truth.