Sam Bankman-Fried's Trial: BlockFi's CEO Discloses Billion-Dollar Loss, Links with Alameda

BlockFi's CEO Zac Prince testified today (Friday) in the ongoing case against Sam Bankman-Fried (SBF), highlighting a billion-dollar loss incurred by his crypto lending firm in connection with Alameda Research and FTX.

According to a report by Coindesk, BlockFi's involvement with Alameda Research began between 2020 and 2021. Prince mentioned the existence of loan agreements between the two companies. Subsequently, BlockFi had extended up to USD $1 billion to Alameda as of May 2022.

Alameda Repaid Initial Loan in Full

BlockFi's troubles began when it experienced significant losses due to the collapse of the Terra Luna crypto ecosystem. To recover these losses, the lending firm initiated a process to recover its loans from Alameda. Surprisingly, the jury was informed that Alameda Research repaid all the borrowed funds, leading to BlockFi offering new loans worth USD $850 million to the company.

Besides its relationship with Alameda Research, BlockFi was a customer of FTX. It allegedly held the collateral provided by Alameda Research on FTX and managed customers' funds amounting to around USD $350 million on the exchange. BlockFi had found itself in a tough financial situation, ultimately losing "a little over a billion dollars" due to its ties with Alameda and FTX. This loss forced BlockFi to declare bankruptcy.

Assistant US Attorney Nicholas Roos asked Prince to explain why BlockFi filed for bankruptcy. Prince clarified that the financial impairment of its funds on FTX and loans to Alameda prompted the decision, though bankruptcy might have still been a possibility later.

Alameda's Downfall and Ongoing Controversy

However, the apparently strong partnership between BlockFi and Alameda Research worsened when the hedge fund collapsed in November 2022. Despite additional collateral in the form of FTT, Robinhood shares, and Grayscale trust shares, a significant sum remained outstanding, eventually contributing to BlockFi's billion-dollar loss.

In July, BlockFi faced heightened scrutiny after creditors alleged that Prince was aware of FTX's unstable financial condition before its collapse. According to the Committee of Unsecured Creditors in a court filing submitted in May, as cited by Decrypt, BlockFi was aware of Alameda Research's overexposure to FTT as early as August 2021. Despite these concerns, Prince allegedly dismissed the risks, allowing Alameda Research to receive loans primarily collateralized by the FTT token.