Sam Bankman-Fried’s crypto broker FTX is looking to scoop its embattled rival BlockFi for pennies on the dollar after the exchange faced a liquidity crunch due to the default of various counterparties.
A report from CNBC obtained confirmation from three sources familiar with the discussions that a tender offer has been submitted for $25 million only days after FTX provided BlockFi with a $250 million financial lifeline to shore up its finances.
The deal would result in heavy losses for BlockFi’s shareholders as the crypto exchange was at some point valued at as much as $4.8 billion during a funding round reportedly led by Daniel Loeb’s Third Point Management.
This has been the latest move from FTX to pick up the pieces after a tough crypto winter has shook up the financial stability of various firms within the crypto ecosystem including Celsius Network, CoinFLEX, and Voyager.
FTX’s involvement could prevent more severe issues at BlockFi and may allow the firm to keep operating without any hiccups at a point when several competitors have been pausing withdrawals.
Your capital is at risk.
Bad Loans – The Root of All Problems for Firms Like BlockFi
Undercollateralized loans have been blamed for being the primary cause that led to this debacle across the crypto and DeFi ecosystem.
The collapse of the Terra ecosystem and its native tokens UST and LUNA and the market-wide decline in the valuation of crypto tokens triggered the crisis and revealed weakness in the market’s structure.
One of the most prominent incidents that have stressed the finances of crypto exchanges was the implosion of Three Arrows Capital, a Singaporean crypto hedge fund that gambled billions of dollars in leveraged positions and that has been forced to liquidate its holdings by a court from the British Virgin Islands.
A complete lack of regulatory oversight of crypto lending practices can also be blamed as exchanges have not been transparent enough about their finances and this has caught thousands of investors by surprise after they find out that their money was not as safe as they thought.
Voyager Digital might be the next company in line to be acquired by FTX after the exchange was provided with hundreds of millions in financing from its rival. Voyager sent a notice of default to Three Arrows Capital just days ago after the hedge fund failed to repay a line of credit consisting of 15,250 BTC and $350 million worth of USDC tokens.
The price of Bitcoin (BTC) is dropping nearly 6% during today’s session and has once again drifted below the closely watched $20K threshold.
Bankman-Fried Believes That The Situation Could be Worst Than it Appears
In regards to the situation of crypto brokers at the moment, the founder of FTX recently stated in an interview with Forbes that many of its smaller rivals may already be “secretly insolvent”.
In addition, the crypto billionaire said that some exchanges may be “too far gone” and that it would not be “practical” to stop them from collapsing as the hole in their balance sheet is just too large.
Interestingly, various reports have been circulating about FTX passing on a bid to save the troubled crypto lending firm Celsius Network. According to sources cited by The Block, the hole in the protocol’s balance sheet was quite large at around $2 billion due to the firm extending undercollateralized loans to parties that have been unable to fulfill their financial obligations due to the crypto winter
A similar situation has been occurring in DeFi where the total value locked within the various protocols that make up the ecosystem has declined from a peak of nearly $260 billion back in December last year to just $71 billion.
One of the most prominent incidents in this particular space was the implosion of the Anchor Protocol, a Terra-based crypto savings platform that offered 20% annual percentage yields (APY) to users who staked their UST tokens.
Other Related Articles:
- Best Metaverse Altcoins for High Returns in June 2022
- 10 Best Crypto Presales to Invest in 2022 – Compare Pre-ICO Projects
- Best Web 3.0 Crypto Coins to Buy
eToro - Top Crypto Platform
- Free Copy Trading of Professional Traders
- Free Demo Account, Crypto Wallet
- Open to US & Worldwide - Accepts Paypal
- Staking Rewards, Educational Courses