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Crypto Exchange FTX Is in Talks to Acquire a Stake in BlockFi: Report

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FTX is in talks to acquire a stake in beleaguered crypto lender BlockFi. The acquisition talks came as BlockFi secured a $250 million line of credit from FTX, which the crypto industry largely recognised as a “bailout.” The proceeds of the credit facility are intended to be contractually subordinate to all client balances across all account types and will be used as needed. This agreement also unlocks future collaboration and innovation between BlockFi and FTX.

According to Yusko, the FTX credit line proposal had a catch for BlockFi’s existing shareholders: It gave FTX the option to buy BlockFi “at essentially zero price.” If FTX were to exercise said option, it would effectively wipe out all of BlockFi’s existing equity shareholders, including management and employees with stock options, as well as all equity investors in the company’s previous venture rounds.

However, Yusko said on the leaked call that BlockFi founders Zac Prince and Flori Marquez had a valid reason for preliminarily accepting the terms: Of the several emergency financing offers BlockFi received, FTX’s was the only one that would not subordinate client assets to the rescuer.

FTX gave crypto lender a $250 million credit line this week

In other words, unless BlockFi went with FTX, its depositors would have had to wait in line behind the new lender to be repaid. Additionally, BlockFi had not received any equity financing options at that stage. (Yusko did not identify any of the other firms that proposed bailout packages for BlockFi.)

Morgan Creek Digital, co-founded by Anthony “Pomp” Pompliano, is one of BlockFi’s largest investors. The firm has participated in BlockFi’s Series A through D fundraising rounds across three funds and a special purpose vehicle (SPV), a type of investment structure that allows an investor to invest in a single company.

Crypto firms have been grappling with a massive price slide that has erased $2 trillion in value since the market’s high in November. In early May, the stablecoin Terra USD collapsed, wiping out about $40 billion worth of crypto assets. A number of firms, including Celsius Network LLC and Three Arrows Capital Ltd., have come under severe liquidity constraints in recent months. This week Voyager lowered the withdrawal limit for its customers to $10,000 over a 24-hour period, down from $25,000, according to an update to its website.

Voyager said Three Arrows owed it $666 million, and that Voyager was considering issuing a notice of default. They lent the hedge fund 15,250 bitcoins and $350 million in USD Coin. Voyager had about $5.9 billion in cash and other assets on its balance sheet as of its most recent financial report in March. It reported $3.4 billion in crypto assets held and $2 billion in assets lent out.

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