During his testimony in the trial involving Sam Bankman-Fried, former counterparty and founder of FTX and Alameda Research, BlockFi CEO Zac Prince detailed how his lending firm faced significant financial losses, ultimately leading to bankruptcy. Prince shared that BlockFi commenced lending money to Alameda Research in late 2020 or early 2021 under what he initially perceived as robust loan agreements. After an initial round of loans, Alameda requested more substantial sums in the second quarter of 2021, and BlockFi granted the hedge fund further loans following discussions with Bankman-Fried.
By May 2022, BlockFi’s loans to Alameda exceeded $1 billion. However, BlockFi sought repayment due to substantial losses incurred from the collapse of the Terra Luna crypto ecosystem. Alameda eventually repaid the borrowed funds, and BlockFi extended new loans amounting to $850 million to Alameda.
When questioned about the precautions taken to ensure Alameda’s ability to repay its loans, Prince emphasized the receipt of quarterly balance sheets from Alameda, indicating a substantial amount of liquid assets, portraying their solvency. Alameda also posted collateral, primarily comprised of FTX’s native token FTT and other cryptocurrencies. Despite the extensive collateral, BlockFi ultimately faced substantial losses.
BlockFi not only acted as a lender to Alameda but also as a customer of FTX. It held Alameda collateral on FTX and engaged in trading customer funds worth approximately $350 million on the platform.
In total, Prince revealed that BlockFi experienced losses exceeding $1 billion due to its involvement with FTX and Alameda Research. These losses were a significant factor in BlockFi’s decision to declare bankruptcy less than three weeks after the downfall of Sam Bankman-Fried’s crypto empire.
Prince’s testimony underscored the complexities and challenges within the crypto lending and exchange sectors, revealing differences in transparency between crypto businesses. BlockFi’s customers were aware of the company’s lending practices, as stated in its terms of service, emphasizing a contrast with other industry players. Prosecutors have spent several weeks inquiring whether FTX’s customers were aware of their funds being loaned to Alameda, revealing inconsistencies in transparency within the sector.