Recent events involving BlockFi, a popular bitcoin lending platform, have brought the company back into the spotlight. U.S. bankruptcy court granted the company’s request to return $297 million in Wallet deposits to users after it filed for Chapter 11 bankruptcy protection in November 2022.
There are restrictions on how much money may be refunded. Funds being returned to the customer base will not be distributed to those customers who hold a BlockFi Interest Account [BIA]. Due to BlockFi’s usage of BIA account money for lending purposes, such monies are now considered part of the bankruptcy estates. As a result, all debts will be settled with these proceeds.
For the time being, users of BIA who sought to transfer funds to Wallet accounts will not be able to get their money back, under an order by Bankruptcy Judge Michael Kaplan. The loss to interest-bearing accounts will be substantial.
On November 11, over 48,000 BlockFi customers tried to move $375 million from their BIA accounts to their Wallet accounts. This was not possible since at 8:15 PM on November 10th, BlockFi suspended all transactions. Kaplan elaborated,
There was a discrepancy between the transactions and the user interface.
According to court filings filed by BlockFi, consumers sought to relocate assets worth around $292 million after the suspension, locking them in place. However, as of right now, BlockFi can reverse such purchases.