BlockFi Had $600 Million in Crypto Loans Not Covered by Collateral in Q2

By Andrew Throuvalas

Crypto lending platform BlockFi held “loan exposure” totaling $600 million by the end of June, according to the company’s “Q2 2022 Transparency Report,” released on Friday.

The report showed BlockFi held an institutional and retail loan portfolio totaling $1.8 billion, with $1.2 billion in loan collateral. The firm defines its net “exposure” to a loan counterparty as “the fair value of loans to the counterparty minus the fair value of collateral posted by the counterparty.” This means that over half a billion dollars loaned out by BlockFi in Q2 wasn't covered by collateral.

Collateral refers to assets posted by borrowers to lenders as security against the borrower’s default. If the borrower cannot repay their debts, BlockFi may “liquidate” his collateral, assuming permanent ownership of the funds.

For example, BlockFi liquidated the now bankrupt crypto hedge fund Three Arrows Capital last month, with BlockFi CEO Zac Prince claiming at the time that no customer funds were impacted by the event.

"We require many, but not all, borrowers to post varying levels of collateral depending on the borrower's credit profile," explained the company in the report.

BlockFi reported that the fair value of stablecoins and digital assets stored in its clients’ wallet accounts was roughly half a million. Wallet accounts are non-interest-bearing custodial accounts from which BlockFi does not deploy assets for “revenue-generating activities,” the report said.

However, the firm owns another $2.6 billion in digital assets borrowed from customers through its BlockFi Interest Account (BIA) and BlockFi Personalized Yield (BPY) programs. These assets are used for BlockFi’s lending activities for its retail and institutional clients, and to facilitate trading on their behalf.

As of June 30, the platform’s total deployable assets—consisting of BIA, BPY, and customers’ loan collateral—totaled $3.9 billion. At BlockFi, loan collateral is also used for lending, investing, and rehypothecation (reusing collateral for BlockFi’s own funding), without the firm needing to retain “a like amount of digital assets.”

BlockFi accepted a $250 million revolving credit facility from FTX in June to keep itself afloat as the bear market set in. Prince has nevertheless attempted to distance himself and his company from other troubled firms such as Voyager Digital and competing crypto lender Celsius, both of which have filed for bankruptcy and frozen user withdrawals.