FTX, the cryptocurrency exchange led by billionaire Sam Bankman-Fried, has entered negotiations to acquire a stake in the beleaguered crypto lending firm BlockFi, according to a report today in the Wall Street Journal, citing unnamed sources.
The acquisition talks come on the heels of BlockFi's announcement earlier this week that it secured a $250 million line of credit from FTX, which the crypto industry largely recognized as a "bailout."
"This agreement also unlocks future collaboration and innovation between BlockFi & FTX as we work to accelerate prosperity worldwide through crypto financial services," BlockFi CEO Zac Prince tweeted at the time.
The “definitive documents” that spell out the terms of BlockFi's line of credit from FTX are still underway and could include the crypto exchange acquiring a stake in the battered crypto lender. Unnamed sources familiar with discussions between BlockFi and FTX told the Wall Street Journal on Friday that an equity agreement had not yet been reached.
Prince explained on Tuesday that the revolving line of credit will be subordinate to client funds, meaning that the company will meet its obligations to its customers before repaying FTX.
Prince told Bloomberg that taking the line of credit was equal parts offensive and defensive, in terms of strategy, and that the company processed a "higher-than-usual volume" of withdrawals last week, when news about a possible bank run at its competitor Celsius shook markets. Celsius abruptly suspended all user withdrawals from its platform nearly two weeks ago and has been all but silent ever since.
"We felt that it was a smart, offensive and strategic decision for BlockFi to bolster the balance sheet with a big number, and tell everybody about it," he said.
Meanwhile, FTX CEO Bankman-Fried has been quiet about the BlockFi deal. But yesterday he did bemoan the reluctance of venture capitalists to provide more of a backstop for crypto startups during the market downturn.
Bankman-Fried said on Sunday, before the BlockFi deal was announced, that he feels his companies "have a responsibility to seriously consider stepping in, even if it is at a loss to ourselves, to stem contagion."
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