FTX and Alameda Reach $874M Settlement with BlockFi Amid Bankruptcy Proceedings

FTX and Alameda have agreed to an “in-principle” settlement with BlockFi, potentially paying up to $874 million, marking a significant development in the ongoing bankruptcy saga.

FTX and Alameda Research have reached an agreement to settle in disputes with crypto lender BlockFi, potentially paying up to $874 million. This agreement marks a key step in the unfolding saga of the 2022 cryptocurrency market crash, which has led to a series of high-profile defaults.

The settlement agreement, which is subject to court approval, was detailed in a document dated March 6, 2024, outlining a settlement that could result in significant refunds for BlockFi customers. Under the terms, BlockFi is to receive an allowed customer claim of $185.2 million against FTX.com, representing the full value of its assets on the exchange, and a claim of $689.3 million against Alameda Research for loans made by BlockFi.

BlockFi entered Chapter 11 bankruptcy in November 2022 following the shock collapse of FTX earlier that month. The legal battles that ensued between BlockFi and FTX until 2023 reflected the complex financial entanglements and subsequent consequences in the crypto industry.

The proposed settlement is poised to treat $250 million of the total as a “secured claim,” offering BlockFi priority payment once FTX emerges from bankruptcy. This amount is part of the funds owed to BlockFi by Alameda Research, with the rest depending on FTX’s ability to reimburse its own customers and other creditors.

The settlement was reached with the help of U.S. Bankruptcy Judge John Dorsey in Wilmington, Delaware, and included early mediation that resulted in reduced legal costs. The successful negotiation of this agreement highlights the complexity and interdependence of crypto financial operations, highlighting the risks associated with borrowing and lending digital assets.

As part of the settlement, BlockFi agreed to drop its lawsuit over 56 million Robinhood shares that were allegedly pledged as collateral for loans to Alameda Research. That aspect of the settlement came after the US Department of Justice seized those shares following the arrest of FTX founder Sam Bankman-Fried.

While the resolution represents an important milestone for BlockFi, the broader implications for the crypto industry remain to be seen. The settlement could set a precedent for how crypto-related bankruptcy claims are handled in the future, especially those involving intertwined financial relationships between lending platforms and exchange entities.

BlockFi customers are holding their breath as confirmation of the agreement could allow withdrawals and potential recovery of assets. BlockFi administration expressed gratitude to customers for their patience and to the court system for facilitating a decision that maximizes value.

As the cryptocurrency market continues to evolve, BlockFi’s agreement with FTX and Alameda Research serves as a reminder of the industry’s growing problems and the need for sound risk management practices.

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