Following BlockFi’s Chapter 11 bankruptcy filing in In the United States Bankruptcy Court of New Jersey, reports have surfaced about the crypto-lending company’s risk assessment and management culture.
According to Forbes, as early as 2020, company culture discouraged employees from “describe the risks in internal written communications to avoid liability”, according to a former BlockFi employee.
Although BlockFi claimed that risk management was at the core of its DNA and critical to its mission, the details that are coming to light paint a different picture of the company. BlockFi executives appear to have prioritized aggressive growth while dismissing risk management professionals trying to do their jobs.
According to a former employee, an internal BlockFi team raised concerns that the pool of borrowers was too concentrated among crypto-whales, which included mega-hedge funds Three Arrows Capital and Alameda Research, to which management responded that the loans were guaranteed.
Reports emerging about BlockFi’s risk assessment and management culture seem to contradict the image that the cryptocurrency lending company portrayed to its clients. In a blog post, which was updated after the FTX collapse, the company maintained: “Risk management is one of BlockFi’s core strategic and differentiating advantages, driving our track record of delivering market-leading interest payments, access to client funds, and preservation of client capital through of all market environments”.
During the hearing on the first day of its bankruptcy proceedings, a BlockFi attorney shared that the cryptocurrency lender has an estimated $355 million tied up in FTX, while the collapsed exchange’s sister company, Alameda Research, had defaulted on a loan from $680 million.
Although FTX and Alameda are estimated to owe BlockFi a billion dollars, the state of Financial obligations appear to be complicated by the $400 million credit line that FTX.US extended to BlockFi on July 1.
BlockFi, which previously denied having most of its assets held in custody at FTX, has cited the collapse of FTX as the reason for its troubles.
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