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The now bankrupt crypto lending firm BlockFi has taken a significant step towards facilitating the return of users’ funds. The platform has filed a court application for the transfer of “trade-only” assets from users’ accounts into stablecoins to help enable smoother withdrawals.
The company initiated this process in August and recently applied to the United States Bankruptcy Court for the District of New Jersey. The intention behind the application is to authorise the conversion of trade-only assets like Algorand’s native token, Bitcoin Cash, and Dogecoin into stablecoins like Gemini Dollar (GUSD). The move seeks to streamline the withdrawal process for users with assets that have been difficult to withdraw.
The application points out that the “trade-only” assets make up less than 0.5% of all wallet assets of BlockFi users in the United States. While assets like Cardano, Solana, Avalanche, and others fall under the trade-only category, they are being managed separately by BlockFi International.
BlockFi’s journey to this point has been plagued by challenges, including Chapter 11 bankruptcy protection filings in 2022. At the time, the bankruptcy filing placed BlockFi alongside other controversial crypto exchanges including FTX, Celsius Network, and Voyager Digital. Following a period of suspended fund withdrawals, the court granted BlockFi permission to reinstate withdrawals on August 16, 2022, after a nine-month hiatus.
The court has also given conditional approval to BlockFi’s restructuring plan, which revolves around fund recovery from various entities such as Alameda Research, FTX, Three Arrows Capital, Emergent, and Core Scientific.
During this process, BlockFi’s legal team argued that FTX’s attempts to retrieve substantial sums to settle its obligations. As of April 2023, BlockFi’s estimated debt amounted to around $10 billion, spread across more than 100,000 creditors. The debt includes significant amounts owed to its three largest creditors and a considerable sum to the troubled crypto hedge fund 3AC.