Cryptocurrency investment firm Morgan Creek Digital is trying to raise $250 million from investors to buy a majority stake in BlockFi. Morgan Creek's plan is to quickly buy a stake in BlockFi to combat FTX's $250 million credit line extension to BlockFi.
Many Venture Capital funds are looking to provide equity to BlockFi as the company struggles to stay afloat.
BlockFi's existing shareholders, including Morgan Creek, are at risk of losing all equity in the company.
FTX lends BlockFi $250 million
According to Yusko, the FTX credit line proposal has caught the attention of BlockFi's existing shareholders. That gives FTX the option to buy BlockFi "basically at a zero price." FTX's exercise of the option will wipe out all existing BlockFi shareholders, including management and employees who have the right to choose shares, as well as all equity investors in the company's previous joint venture rounds.
However, BlockFi founders Zac Prince and Flori Marquez have good reason to weigh in and preliminary accept the terms. Of the emergency funding offers BlockFi received, FTX was the only one that did not require the client's assets.
In other words, without a partnership with FTX, depositors and BlockFi customers will have to wait until the new lender recovers their investments before regaining assets on the platform.
Additionally, BlockFi did not receive any equity financing options at this stage. (Yusko didn't identify any other companies that proposed the bailout for BlockFi.)
The deal to keep BlockFi and FTX will be completed in three days.
BlockFi CEO Prince said on June 21 that the company had signed a preliminary agreement with FTX. Yusko told investors that the deal between FTX and BlockFI is probably three days away from being finalized.
"We are still negotiating the terms of the agreement and are unable to share further information at this time," a BlockFi spokesperson said on June 25.
"We are expected to share more about the terms of the agreement with the public at a later date." FTX did not respond to a request for comment from the press.
According to Yusko, in the event that FTX exercises its options after extending the credit line, only senior investors of the company's latest price hike will benefit.
Morgan Creek , which has been involved in several funding rounds for BlockFi, will be among the holders.
"The only alternative is to raise an equal amount of equity and that's what we're doing. It's 10% chance, but it's better than not." Yusko told investors on the call.
It's a small opportunity to rescue BlockFi, one of the cryptocurrency industry's biggest lenders, amid a slump in digital assets and financial markets. It also suggests the current turmoil echoes past financial crises as Yusko compares FTX's bailout to J's bailout. Pierpont Morgan from the Knickerbocker Trust in 1907.
Goldman Sachs, meanwhile, has been trying to organize a group of investors to recover Celsius Network's assets, at a high discount in case that company files for bankruptcy.
Morgan Creek strikes a joint agreement with FTX for BlockFi
On June 24, the Wall Street Journal reported that FTX was in talks to acquire a stake in BlockFi. There is no definitive information on whether the new developments will significantly change the negotiations.
During the leaked call, Yusko floated the idea of a joint deal in which FTX (led by billionaire Sam Bankman-Fried) and Morgan Creek both gave up part of their capital to bail out BlockFi.
"I will definitely try to pursue a mutual agreement. There hasn't been a quick deal with the SBF yet, but I'll most likely get that call," Yusko said.
Yusko spoke to a potential investor who could write a $100 million check. Two other investors also "expressed interest" and could write checks of up to $50 million.
Morgan Creek Digital, co-founded by Anthony "Pomp" Pompliano, is one of BlockFi's largest investors. The company has participated in BlockFi's A-to-D funding rounds across three funds and a dedicated vehicle (SPV), a type of investment structure.
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