- The report also showed how BlockFi is managing credit risk and liquidity.
- The crypto lender has established new liquidity guidelines to meet its core business obligations.
Struggling crypto lender, BlockFi, released its Q2 2022 transparency report on Thursday. The report showed it had $600 million in “net exposure” and $1.8 billion in outstanding loans from retail and institutional investors. The report contains the company’s risks associated with liquidity and credit. It also contains a breakdown of the firm’s total assets under management.
It also contains additional details about its loan portfolios from retail and institutional investors. According to the report, BlockFi has $600 million in collateralized loans. $300 million of the $1.8 billion outstanding loans were from retail borrowers. The remainder were from institutional firms. The firm used BTC’s price of $19,986 in calculating these holdings and outstanding loan amounts.
We've just published our Q2 Transparency Report with a breakdown of our total AUM, retail and institutional loans, and how we manage related liquidity and credit risk.
— BlockFi (@BlockFi) July 21, 2022
New liquidity guidelines
The report also stated that the crypto lender now has guidelines on maintaining its liquidity. Thus, it can meet the core obligations of its business operations. Such core obligations include trading operations, retail and institutional borrowing. The guidelines specify that BlockFi will keep 10 percent of the total amount that’s ascribable to clients upon notice of inventory completion by the clients.
However, the firm will be ready to return such funds to the clients when necessary. Also, BlockFi will keep a minimum of 50 percent of owed funds in safe places. However, it should be possible to retrieve the funds from such places and refund the clients in less than a week.
Furthermore, it will keep a minimum of 90 percent of the whole amount owed to clients upon demand, whether in loans or inventory. However, the bank should be able to call back such an amount in less than 12 months. BlockFi establishes new liquidity guidelines a few weeks after receiving a $400 million credit facility from the leading crypto exchange, FTX.
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Under the terms of the agreement, FTX can purchase BlockFi for a maximum of $240 million, depending on various performance indicators. BlockFi sought a credit line facility from FTX following a default in loan payment from the liquidated crypto hedge fund, three arrows capital (3AC).
BlockFi published an in-depth blog post two days ago outlining its risk management approach. According to the post, the crypto lender has classified its clients into three tiers and provides it’s Tier 1 clients uncollateralized loans. These clients have huge financial bases and trusted third parties audit their financial statements.
Also, they must be transparent and willing to engage with BlockFi. The crypto lender considers institutional firms an example of such Tier 1 clients. In contrast, BlockFi won’t offer uncollateralized loans to its other two tiers of clients. However, it would review this credit risk management practice regularly. The crypto lender touts itself as the best firm at adapting traditional financial risk management practices for the crypto market.