SBF aids BlockFi: Even if we lose some money, we must stop the crisis from spreading

22-06-22 13:46

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The explosion of Celsuis and Three Arrows has affected many other institutions. The Financial Times previously reported that BlockFi liquidated Three Arrows Capital’s collateral. In order to further strengthen the stability of its own balance sheet, BlockFi announced on June 21 that it has obtained a US$250 million revolving credit line from the FTX trading platform.

Previously foreign media reported that BlockFi had a loan relationship with Sanjian Capital and liquidated the collateral, so many people questioned BlockFi's solvency; but BlockFi CEO Zac Prince emphasized that this credit is simply to strengthen the strength of its own balance sheet.

Zac Prince tweeted:

“Today BlockFi and FTX signed a agreement, FTX will provide a $250 million revolving credit facility, which further strengthens our balance sheet and platform liquidity.”

Revolving Credit and General Credit is different. Revolving credit has the characteristics of fast borrowing and no binding. Within the revolving quota, BlockFi can borrow and repay at any time, no interest will be charged if the loan is not used, and no interest will be charged for repayment on the same day. In addition, there is no need to pay liquidated damages for early repayment.

In general, an institution's balance sheet is divided into debt servicing and liquidity. Debt solvency refers to the asset-liability ratio of an institution. Usually, the assets are greater than the liabilities, which means that the solvency is safe.

However, the current market panic, what BlockFi needs to face is the liquidity problem. That is, whether the cash/assets in the assets can cope with the user’s request, so judging from the Twitter content, the reason why BlockFi needs FTX’s credit is to increase liquidity and confirm that users can withdraw the balance at any time.

“I couldn’t be more proud of the performance of the team, platform and risk management during the past few weeks of market volatility. Today’s announcement is a milestone and reinforces BlockFi’s commitment to users, to ensure that funds are guaranteed.”

In addition, Zac Prince also said that there will be more cooperation and cooperation with FTX in the future innovation.

SBF previously said: Responsibility to prevent the spread of the crisis

Facing the successive thunderstorms of the two major institutions, which seriously affected the confidence of investors, SBF was interviewed by American Public Radio "NPR" During the interview, he said that he did consider intervening to prevent the crisis from spreading, so that the encryption ecology is more healthy.

It said:

“I did think seriously about getting involved in this crisis because We have a responsibility to do this. Even if we lose some money by stepping in, we also want to prevent the crisis from spreading.

Although we are not the culprits of the crisis, we are also Not involved, but preventing the spread of the crisis is healthy for the encryption ecosystem. I want to do things that can help the encryption ecosystem grow.”

But he also emphasized again, There is no problem with BlockFi's solvency, and the need for credit is just a precautionary measure, which shows that BlockFi has prudent risk management.

SBF tweeted:

“BlockFi has prudent risk management while also They have excellent situational leadership skills, so they will identify the risks of counterparties in advance and liquidate positions. BlockFi’s user assets are properly managed, and there is no debt risk from Sanjian, Celsuis, etc.”

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It is worth mentioning that this is not the first time that FTX has extended a helping hand to its peers.

Japanese cryptocurrency exchange Liquid was hacked last year, stealing nearly $100 million worth of cryptocurrencies in total. At that time, FTX provided $120 million in financing to Liquid.

「Today we're injecting $250m into BlockFi and partnering with them so they can navigate the market from a position of strength."

—SBF (@SBF_FTX) June 21, 2022