BlockFi filed for bankruptcy citing the impact of the crash of FTX. However, during the investigation, it was discovered that the company had many vulnerabilities before and its former employees accused the company’s executives of ignoring them when they warned about credit risks and had fired them afterwards.
Recently bankrupt crypto company BlockFi has stated in its bankruptcy filing as the collapse of FTX and the decline of the global crypto market.
But a closer look at the company’s practices shows that its vulnerabilities could have started much earlier due to missteps in risk management, including loosened lending standards, group of people highly concentrated borrowing and unsustainable trading activities.
According to Forbes, a former employee of this crypto lending platform, said that as early as 2020, the company has discouraged employees from describing risks in written internal communications to avoid liability. Meanwhile, BlockFi’s due diligence process also has flaws, according to people who have borrowed on the platform.
Credit to borrowers is determined based on their assets, but BlockFi and other lenders fail to investigate the size and quality of potential borrowers’ assets.
Another former employee also said that an internal team at BlockFi is also concerned that borrowers are too focused on crypto whales, including major hedge funds Three Arrows Capital and Alameda. But the management replied that the loan was secured.
Previously, in BlockFi’s bankruptcy filing and in public statements by CEO Zac Prince multiplied his existence through the collapse of the Terra/Luna ecosystem and the subsequent closure of Three Arrows Capital is proof of tight management.
But that stamina four months ago was exercised through a $400 million line of credit from the now-defunct FTX, allowing the company to respond to panic withdrawal requests from depositors. When FTX ended in early November, BlockFi lost its re-lending stop and could no longer respond to new waves of withdrawal requests.
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