Defunct cryptocurrency lending company BlockFi has taken a significant step in returning user funds by petitioning the US Bankruptcy Court for the District of New Jersey. The request seeks court authorization to convert "trading-only" assets held in user accounts into stablecoins ins to facilitate withdrawals. This move comes as part of BlockFi's ongoing effort to return funds to its users, a process initiated in August.
The application, filed on August 29, specifically targets assets such as Algorand's native token, bitcoin cash, and Dogecoin, which are challenging for users to withdraw. BlockFi proposes converting these assets into stablecoins like Gemini Dollar (GUSD) to enable easier withdrawal. To BlockFi's filing, the total value of these trading-only assets does not exceed 0.5% of all US wallet assets belonging to BlockFi users. Notably, other trading-only assets like Cardano, Solana, and Avalanche are held exclusively by BlockFi International.
BlockFi's committee of creditors, sanctioned by the court, has expressed support for this petition. In 2022, BlockFi joined a list of companies seeking Chapter 11 bankruptcy protection in the United States, which included FTX, Celsius Network, and Voyager Digital. As part of this process, customer withdrawals were temporarily halted in November 2022. However, on August 16, the court granted BlockFi permission to resume withdrawals for the first time in nine months.
Furthermore, the court conditionally approved BlockFi's restructuring plan, which focuses on the recovery of funds from entities like Alameda Research, FTX, Three Arrows Capital, Emergent, and Core Scientific. On August 21, BlockFi's legal team moved to contest FTX' s efforts to reclaim hundreds of millions of dollars for repaying creditors.
As of April 2023, BlockFi reportedly owed as much as $10 billion to over 100,000 creditors, including $1 billion to its three largest creditors and $220 million to the bankrupt crypto hedge fund 3AC.
