BlockFi, a prominent cryptocurrency lending platform, is once again making headlines with its recent developments. After filing for Chapter 11 bankruptcy protection in November 2022, the company received approval from a U.S. judge to refund $297 million to its customers who had deposits in its Wallet program.
Indeed, there are limitations to the return of funds. Customers who have BlockFi Interest Accounts [BIA] are not eligible to receive the funds being returned to the customers’ group. The reason is that the funds held in BIA accounts were used by BlockFi for its lending activities, making them part of the bankruptcy estates’ assets. Consequently, these funds will be utilized to repay all creditors at a later stage.
According to Bankruptcy Judge Michael Kaplan’s ruling, users of BIA who attempted to transfer funds to Wallet accounts will not receive a refund at the present time. It is quite evident that interest-bearing accounts will be enduring a major loss.
It is important to note that on Nov. 11, approximately 48,000 BlockFi clients attempted to transfer $375 million from their BIA accounts to Wallet accounts. However, BlockFi had already halted all transfers on Nov. 10 at 8:15 pm, preventing these transfers from taking place. Kaplan further added,
“The user interface did not accurately reflect the transactions.”
BlockFi stated in court documents that around $292 million worth of assets were locked on the platform because customers attempted to move them after the halt. But now, BlockFi is permitted to cancel those transactions.
Why do BlockFi’s wallet customers get a free pass?
Unlike the BlockFi Interest Accounts, custodial accounts maintained their ownership rights. To safeguard their assets during the halt, these customers opted to transfer their funds into a more secure digital wallet. This allowed them to have greater control and protection over their assets during that period.
Therefore, Judge Kaplan ruled in favor of BlockFi as well as these customers. Additionally, the crypto lender has until May 15 to present its bankruptcy exit plan.