Crypto-friendly bank Silvergate has been forced to return $9.85 million to BlockFi as part of the crypto lender’s ongoing bankruptcy proceedings.
as per the documents provided On the website of BlockFi’s restructuring advisorThe bankruptcy court overseeing Blockfi’s reorganization process ordered Silvergate to immediately release $9.85 million to the now-defunct crypto lender on Friday.
The order comes after BlockFi and SilverGate entered into an agreement in August 2020, where SilverGate acted as a depository institution for “credits initiated by BlockFi through SilverGate for accounts maintained at SilverGate and other depository financial institutions.” and/or in respect of debit entries.”
In November 2021, BlockFi agreed to set up a $10 million reserve. The agreement states that the account will expire 90 working days after the last relevant transfer, giving Blockfi unrestricted access to those funds.
“Silvergate shall immediately release $9,850,000 from the Silvergate Reserve Account to the Account specified by the Debtors,” the order states, while allowing Silvergate to keep the remaining $150,000 in the Reserve Account.
The court order is part of BlockFi’s ongoing bankruptcy proceedings, which became the first company To file for bankruptcy after the collapse of FTX. The crypto lender has over 100,000 creditors and owes between $1 billion to $10 billion to those creditors.
Founded in 2017, BlockFi was a digital asset lender that was once valued at $3 billion. By 2021, BlockFi has between $14 billion and $20 billion in customer deposits and has lent $7.5 billion.
Notably, while Blockfi and Silvergate have been working together over the past few years, Due has not had a very close relationship. After Blockfi collapse, Silvergate says it has less than $20 million at risk to the crypto lender, adding that it was not a custodian for BlockFi’s bitcoin-collateralized SEN leveraged loan and had no investments in BlockFi.
Silvergate sees exodus of customers amid concerns about its financial condition
Earlier this week, Silvergate announced that it will not be able to file its annual 10-K financial report to the SEC on time and that it is evaluating its ability to remain in business. The bank’s shares fell more than 55% on Thursday following the announcement.
Silvergate was one of the lenders most affected by the fall of FTX last November. As mentioned, Silvergate faced a bank run Following the collapse of FTX and had to sell $5.2 billion of debt securities held on its balance sheet to cover approximately $8.1 billion in user withdrawals.
As a result, it incurred a loss of $718 million, which reportedly exceeds the bank’s total profits since 2013. Furthermore, Silvergate only has $3.8 billion in deposits at the end of 2022, compared to $11.9 billion in 2021.
Several crypto companies, including Coinbase, Paxos, Galaxy Digital and Kraken, have terminated their relationships with the bank following the news of Wednesday’s filing. MicroStrategy and Tether also have exposure They did not have any meaningful exposure to the bank.