In many weeks, Sam Bankman-Fried’s extension of a faltering digital assets business has prompted analogies to a crypto central bank.
The 30-year-old CEO revealed on Tuesday that his cryptocurrency trading platform FTX has provided BlockFi with a $250 million loan. Last week, Bankman-Fried assisted crypto broker Voyager Digital in regaining financial stability with a loan of around $485 million in cash and bitcoin.
FTX extends a $250mn loan to BlockFi
The extension occurred as the crypto sector attempted to restore trust during escalating price pressure on digital assets, which pushed even the industry’s most significant market players into turmoil.
One of the fundamental characteristics of cryptocurrencies is their independence from centralised institutions such as central banks. Analysts claim that billionaire Bankman-Fried is assuming a role comparable to that of the government that rescued banks during the 2008 financial crisis.
According to Anatoly Crachilov, CEO of London-based fund management firm Nickel Digital Asset Management, Sam became a lender of last resort.
“If you have a few ‘Lehman’ events at the same time, concentrated, then it could impose crypto winter for a very extended period of time. FTX has the balance sheet to support these businesses, and it’s in their long-term vested interest to see this ecosystem survive.”
Last month, the steep decline in digital asset values claimed an increasing number of victims, including the stablecoin TerraUSD and its sister token Luna, and the loan platform Celsius, which banned users from withdrawing their assets to survive. Since reaching an all-time high in November, bitcoin has lost over 70% of its value, while ether has lost nearly 45%.
Sam Bankman-Fried as a ‘lender of last resort’. Image: Bloomberg/Catherine Breslin
The loans to BlockFi and Voyager indicate that the organisations needed support and visibility. Early last week, the lending platform BlockFi let off around one-fifth of its workforce, claiming a “dramatic shift in macroeconomic conditions.”
It also liquidated Three Arrows’ positions after failing to fulfil BlockFi’s requests for additional assets to cover its digital currency wagers.
On Tuesday, BlockFi said it had agreed with FTX for a $250 million revolving credit line but did not reveal the conditions or interest rate. If BlockFi were to collapse, FTX’s claims on the facility would be subordinate to client balances, according to BlockFi.
Crypto experts showed their perspectives.
Bankman-Fried stated that BlockFi was not in debt to Three Arrows or Celsius and posed no concern.
“Sometimes leadership means acting decisively and that’s what BlockFi did: removing troublesome counterparties before they become a problem, and adding cash before it was necessary,” Bankman-Fried wrote on Twitter.
3) Sometimes leadership means acting decisively and that’s what BlockFi did: removing troublesome counterparties _before_ they become a problem, and adding cash _before_ it was necessary.
— SBF (@SBF_FTX) June 21, 2022
He went on to add that BlockFi was financially sound; all operations were running normally, as they always have, and assets were secure.
Bankman-Fried believed he had a significant role in assisting troubled market players, even when FTX was not participating. He said, “I think that’s what’s healthy for the ecosystem, and I want to do what can help it grow and thrive.”
Voyager agreed to a credit facility of $200 million in cash and USDC, a prominent stablecoin in the cryptocurrency market, and a second credit facility for 15,000 bitcoin, equal to around $285 million. Both loans expire at the end of 2024 and have an annual interest rate of 5%.
CEO of BlockFi, Zac Prince, stated that the transaction will offer his firm “access to money that would further strengthen our balance sheet.”
He said their staff is battle-tested and has endured numerous storms over the years, making us more robust and more resilient as we navigate the current market climate.
As the sector has evolved, massive cryptocurrency exchanges have regularly intervened to save troubled projects or businesses.
Last year, FTX provided $120 million in debt financing to Liquid, the exchange that lost around $90 million in tokens to hackers. FTX acquired the smaller exchange later on.
This year, Binance, the largest crypto exchange by volume, led the rescue of Sky Mavis, the business that runs the popular play-to-earn Axie Infinity game, which was hacked to almost $600 million.
Changpeng Zhao, CEO of Binance, stated that “We strongly believe Sky Mavis will bring a lot of value and growth for the larger industry and we believe it’s necessary to support them as they work hard to resolve the recent incident.”