BlockFi Had $600M in Uncollateralized Crypto Loans in Q2

Crypto lending platform BlockFi had “loan exposure” totaling $600 million at the end of June, according to the company’s “Second Quarter 2022 Transparency Report” released Friday.

The report showed that BlockFi held a portfolio of institutional and retail loans totaling $1.8 billion, with $1.2 billion in loan collateral. The company defines its net “exposure” to a loan counterparty as “the fair value of loans to the counterparty less the fair value of collateral provided by the counterparty”. This means that more than half a billion dollars loaned by BlockFi in the second quarter were not covered by guarantees.

Collateral refers to assets posted by borrowers to lenders as security against borrower default. If the borrower cannot repay their debts, BlockFi can “liquidate” their collateral, assuming permanent ownership of the funds.

For example, BlockFi liquid now-bankrupt crypto hedge fund Three Arrows Capital last month, with BlockFi CEO Zac Prince saying at the time that no client funds were affected by the event.

“We ask many, but not all, borrowers to provide different levels of collateral depending on the borrower’s credit profile,” the company explained in the report.

BlockFi reported that the fair value of stablecoins and digital assets stored in its customers’ wallet accounts was around half a million. Wallet accounts are non-interest-bearing deposit accounts from which BlockFi does not deploy assets for “revenue-generating activities,” the report says.

However, the company has an additional $2.6 billion in digital assets borrowed from its customers through its BlockFi Interest Account (BIA) and BlockFi Custom Yield (BPY) programs. These assets are used for BlockFi’s lending activities for its retail and institutional clients, and to facilitate transactions on their behalf.

As of June 30, the platform’s total deployable assets, consisting of BIA, BPY and customer loan guarantees, stood at $3.9 billion. At BlockFi, loan collateral is also used to lend, invest, and remortgage (reuse collateral for BlockFi’s own funding), without the company needing to hold “a similar amount of digital assets.”

BlockFi accepted a $250 million revolving credit facility from FTX in June to stay afloat as the bear market took hold. Prince nonetheless tried to distance himself and his company from other struggling companies such as Voyager Digital and rival crypto lender Celsius, which filed for bankruptcy and froze user withdrawals.