As part of its bankruptcy proceedings, Silvergate was forced to return $9.85 million to BlockFi. According to documents on the bankruptcy proceedings, the court has asked the bank to release the funds to the now-insolvent crypto lender.
Silvergate Refunds BlockFi
Based on the court documents from the website of BlockFi restructuring advisor, Silvergate was ordered by the bankruptcy court to return the $9.85 million deposits to BlockFi on Friday. Meanwhile, the court order came after BlockFi and Silvergate reached an agreement in 2020 for Silvergate to serve as a depository platform for transactions initiated by BlockFi through the bank’s account.
Furthermore, BlockFi agreed to launch a $10 million reserve in November 2021. The agreement specifies that the account would be terminated 90 business days following the last active transfer, thus granting BlockFi access to the funds. The court also permits Silvergate to keep the remaining $15,000 from its reserve account after reimbursing BlockFi $9.85 million.
Meanwhile, the court dispute is part of BlockFi’s ongoing bankruptcy proceedings following the FTX contagion after the latter’s collapse in November 2022. BlockFi reportedly has over 100,000 creditors while owing them between $1 billion to $10 billion.
Established in 2017 and valued at $3 billion before its eventual insolvency, BlockFi has held between $14 and $20 billion in customer deposits and lent out $7.5 billion as of 2021. While BlockFi and Silvergate have had a working relationship for some years, the two entities have no close partnership with one another.
Following BlockFi’s fallout, Silvergate revealed its exposure to the crypto lender and that it has never been a custodian of the company’s product, nor has it any investment with it.
Mass Client Exodus From Silvergate
The crypto bank is currently facing a likelihood of mass client exodus from its platform following concerns over its financial health. At the start of the week, Silvergate revealed that it could not file its annual 10-K financial report to the US Securities and Exchange Commission (SEC) on time.
The bank added that it is currently evaluating its balance sheets to determine if it can stay in business. Following the announcement, the bank saw its shares fall 55%.
Moreover, Silvergate is among the crypto lenders significantly affected by last November’s FTX collapse. Per reports, the lender suffered a bank run forcing it to sell its $5.2 billion worth of debt securities at significantly low prices.
As a result, Silvergate incurred $718 million in loss, which exceeds its total profits. The bank reportedly had $3.8 billion in deposits at the end of last year compared to $11.9 billion in 2021.
Several crypto firms like Coinbase, Galaxy Digital, Kraken, and Paxos have reportedly ended their relationship with Silvergate following the latest development. Others like MicroStrategy and Tether, the USDT stablecoin issuer, have disclosed that they have no exposure to the crypto bank.
Industry observers point to the FTX crash as the reason for the increasing issues in the crypto space.