In a significant development within the cryptocurrency landscape, bankrupt crypto firms BlockFi and FTX have reached an “in principle” agreement to settle their disputes. The agreement, outlined in a court filing on March 6, entails FTX paying up to $874.5 million to BlockFi and dropping its claims against the firm. This resolution could potentially lead to full recovery for BlockFi’s customers.
Settlement details
Under the settlement terms, subject to approval by U.S. Bankruptcy Judge John Dorsey in Wilmington, Delaware, FTX will pay BlockFi $874.5 million. This sum includes a $185.2 million claim against FTX.com, representing the value of BlockFi customer assets held on the exchange, and a $689.3 million claim against Alameda Research for the loans it received from BlockFi.
Of the total amount, $250 million will be treated as a “secured claim,” prioritizing payment to BlockFi after FTX emerges from bankruptcy. The remainder is contingent upon FTX repaying its customers and other creditors first.
Implications and outcome
BlockFi’s bankruptcy administrators view the settlement as an “excellent outcome” for the company and its customers, surpassing initial expectations. The agreement, reached through early mediation, resolves BlockFi’s claims against FTX and sees FTX waiving “millions of dollars of avoidance claims and other counterclaims” against BlockFi.
By avoiding prolonged litigation, the parties involved have reduced litigation costs and ensured that funds reserved for litigation with FTX are directed toward customer distributions. This marks a positive step forward for BlockFi and its creditors.
Background and legal battle
BlockFi filed for Chapter 11 bankruptcy protection on Nov. 28, 2022, following the shock collapse of FTX earlier that month. The companies had engaged in legal battles, with BlockFi asserting that FTX owed it over $1 billion, stemming from a $400 million line of credit and nearly $900 million lent to Alameda Research.
The loans were collateralized by FTX’s token, FTT, which experienced a drastic decline in value after FTX’s collapse. BlockFi also sought to recover 56 million in Robinhood shares allegedly pledged as collateral for loans to Alameda Research.
However, BlockFi was also indebted to FTX.US for up to $275 million under a 2022 rescue loan deal. Estimates suggest that BlockFi owes up to $10 billion to over 100,000 creditors, including its three largest and bankrupt crypto hedge fund, Three Arrows Capital.
Path to recovery
BlockFi emerged from bankruptcy in October 2023 and opened a wallet to enable customer withdrawals. While exact payout details for customers remain unclear, those who utilized BlockFi’s interest-bearing accounts are expected to be able to withdraw some assets in 2024.
Overall, the settlement between FTX and BlockFi represents a significant milestone in resolving disputes within the crypto industry. With a substantial sum committed toward resolving outstanding claims, there is renewed optimism for BlockFi’s customers and stakeholders as they navigate the path toward recovery.
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