By Richard Hines
BlockFi, the crypto lending platform, is on the verge of losing $80 million due to Crypto miner, Core Scientific, failing to return a loan, which could lead to BlockFi’s bankruptcy.
Cause Leading To The Event
Core Scientific, a cryptocurrency mining platform, had stated its desire to evade payments to BlockFi due to equipment funding and promissory notes. This plan was announced alongside a statement of filing from the Securities and Exchange Commission, which would provide the foundation for a complete restructure of the mining platform.
The filing took a heavy toll on BlockFi, causing its stock to plummet by as much as 77%. This severe decrease has the potential to wipe out all shares and values associated with this company. The future impact of this filing is also clear, as the company could go bankrupt and investors could lose all of their assets.
BlockFi granted a loan to this mining platform to help them support their operations, and also active in the use of assets as collateral to back up loan requests. In the event that the borrower is unable to repay the loan, the collateral is withheld and utilized to make up for the loan.
The Problem With Lending To Miners
In the case of mining, it has a negative impact on creditors (lenders); most miners save the revenues from bitcoin mining and use them to pay for ASIC servers to improve their mining activity. This leaves crypto lending firms with unpaid debt, forcing them to sue and take harsh measures in relation to the collateral submitted during the borrowing process.
In an interview with Proton, BlockFi’s Chief Risk Officer, Yuri Mishkin, stated that the company conducts several lending businesses in the crypto space, with mining loans accounting for a small portion of the company’s earnings. Mining loans have their collateral assigned to be mining equipment and similar measures are taken to ensure cooperation between lenders and borrowers within the organization.
A recent case had a corporation downgrading BlockFi’s investment status. This company, a Private Shares Fund, alleged that BlockFi’s E warrant series was of no worth. A warrant is a signed contract between two firms that allows each company to purchase stocks at a predetermined and agreed-upon date and time. According to a report, Private Shares Fund protested about the decline in the value of BlockFi’s shares, which lowered the company’s overall rating.