BlockFi plans to Safeguard customers through its revolving credit

Namrata Shukla
Source: Pixabay

Crypto lending platform, BlockFi got a helping hand from FTX cryptocurrency exchange, offering a $250 million revolving credit facility. Now that it has received the monitor assistance to pull itself out of the troubled waters, co-founder and CEO Zac Prince believed this move would help boost the company’s balance sheet.

While Prince did not reveal details about the revolver, he noted during an interview that if the company ever encountered a liquidation scenario, clients would get their funds back before any credit lines were paid back. This was a statement of relief for the BlockFi customers.

Prince noted that “the best time to raise capital is when you don’t need it.” He took note of the volatility that has crept into the cryptocurrency market over the past six weeks and added,

“While markets are volatile, this was a strategic decision on our part to further bolster our balance sheet and reinforce our commitment to serving clients and ensuring all funds are safeguarded.”

Will this credit revolver be enough during the highly volatile period of crypto values collapsing and users trying to safeguard their assets? We will have to find out, but the co-founder of BlockFi considered it both an offensive and defensive move.

Prince stated,

“To the untrained eye, BlockFi might look to have a seemingly similar business model to others in the space. To the trained eye, and what we know — everybody at BlockFi, what Sam [Bankman-Fried] and the FTX team know, what a lot of people in the industry know — is that its night and day. 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.”

Nevertheless, after six weeks of market drawdowns and projects collapsing, the regulators and traditional financing institutions have become more cautious. Prince explained the infamous UST/Luna’s impact on BlockFi, especially working with the banks.

Prince noted,

“Before UST/Luna happened, we had two Bitcoin-backed credit lines open with two different banks. Before UST/Luna, we borrowed a partial number of those facilities.”

However, things took a turn when UST/Luna collapsed. Although BlockFi still had those Bitcoin-backed credit facilities with the banks, the drawn amount was now zero.

It may take time for crypto-businesses to allow traditional finance to adjust to crypto volatility. Still, until then, any relationship with the mainstream market must be carried out with caution.

As far as the operations of BlockFi are concerned, it was cash-flow positive in May 2022 and reported the finest month ever in its history. The withdrawals on the platform peaked last week but they are currently down 88% from the peak. As per Prince, this declining trend may continue.