FTX Could Buy BlockFi for Only $15M – or a Lot More If Crypto Lender Hits Big Goals

As cryptocurrency lenders crumbled earlier this year, billionaire Sam Bankman-Fried swooped in several times as a backstop. His actions prodded creative headline writers to evoke the market panic of 1907 and argue the co-founder of the FTX exchange and trading giant Alameda is a modern day J.P. Morgan – a financier with deep enough pockets to save the industry.

BlockFi was one beneficiary, getting a $400 million credit line from the U.S. arm of Bankman-Fried’s exchange empire. His company also got the option to acquire BlockFi entirely for up to $240 million.

The “up to” part is important. That maximum price tag was widely reported. What was not made public, however, was what BlockFi must do to earn that amount, and how far it is from those goals. And nobody accurately revealed how little Bankman-Fried’s company could end up paying.

Two people with direct knowledge of the matter have confirmed to CoinDesk what the numbers actually look like. The figures explain FTX’s hopes and dreams for the potential acquisition and show Bankman-Fried isn’t just an altruistic white knight galloping in. The numbers also help illuminate why BlockFi retained an option to unwind the deal, and why the lender’s CEO has emphasized that he has an out.

Read more: FTX's Bankman-Fried Says It’s Worth Losing Money to Prop Up Crypto Industry

FTX US could end up being allowed to buy BlockFi for only $15 million, the minimum price in the deal, according to the people. That’s lower than the $25 million figure that CNBC reported several months ago in a report that prompted BlockFi CEO Zac Prince to tweet, “I can 100% confirm that we aren’t being sold for $25M.”

FTX US, the sources said, would pay an additional $25 million if, by Dec. 31, BlockFi wins an important regulatory clearance from the U.S. Securities and Exchange Commission for BlockFi Yield, a product that would generate interest on depositors’ crypto by lending the crypto out at a higher rate.

FTX US would pony up another $100 million if BlockFi’s client assets reach at least $10 billion by the time Bankman-Fried’s company exercises its option to buy the company, according to the sources. BlockFi managed less than half that amount – $4.4 billion – in combined wallet assets and deployable assets at the end of the second quarter.

Lastly, FTX US agreed to pay an amount equal to 25% of BlockFi’s annual operating income, up to a maximum of $100 million, the sources said. BlockFi’s financials are private. A June 16 tweet, which purported to reveal the company’s income statement, showed it lost money in 2020 and 2021 and projected a loss for 2022.

A BlockFi spokesperson declined to comment on the legitimacy of those financials, as well as for this report. An FTX spokesperson also declined to comment.

BlockFi’s Prince has said FTX cannot exercise its purchase option before October 2023, and BlockFi has the option to buy back FTX’s option at any time for “two to three times the capital FTX put up for the deal.”

“The punchy story is, ‘BlockFi gets bailed out, Sam Bankman-Fried made the best deal of all time,’” Prince said last month on the “Animal Spirits Podcast.” “What’s harder to say is, ‘Actually, this deal can’t close until October 2023 at the earliest.’”

The terms of the deal make clear what FTX US views as BlockFi’s crown jewels: billions of dollars in retail client assets and the possibility it wins regulatory approval for the yield product. Both fit with FTX US’ strategy to court retail users – expanding beyond FTX’s roots among professional crypto traders – for its new stock-trading platform and to win regulatory approvals via acquisitions. Notably absent from the deal math are financial rewards for BlockFi’s technology, brand or intellectual property.

Before the crypto market meltdown created trouble for BlockFi, the company sought a valuation as high as $5 billion and touted blue-chip investors such as Bain Capital Ventures, Tiger Global and Paradigm as backers.

The clock is ticking for BlockFi to fetch the $25 million regulatory bounty. The deal stipulates FTX US would pay that only if BlockFi gets an S-1 registration for BlockFi Yield before the end of 2022.

An S-1 is a big deal in the U.S. It’s the route companies take when they list their stock in the U.S. through an initial public offering.

In February, BlockFi was fined $100 million by the SEC for conducting an unregistered securities offering for BlockFi Yield. The product solicited crypto deposits from users and paid out interest in crypto, effectively functioning as a crypto savings bank.

According to a leaked investor call from Morgan Creek Digital, a large BlockFi backer, BlockFi consulted former SEC Chairman Jay Clayton for advice on how to handle the situation.

“Jay Clayton said, you know, settle, that’ll give you the inside track to getting a registered product in 2022,” said Morgan Creek CEO Mark Yusko during the call, which took place on June 21.

Read more: Morgan Creek Is Trying to Counter FTX’s BlockFi Bailout, Leaked Call Shows

If BlockFi were to obtain the registration, it would be the first crypto platform with a SEC-registered lending product, giving the company a huge advantage over competitors such as Celsius Network, Voyager Digital and Gemini.

It would also put FTX US ahead of its largest U.S. competitor, Coinbase (COIN). In September, Coinbase sparred with the SEC over the launch of its own Coinbase Lend product, with CEO Brian Armstrong tweeting that the SEC was “refusing to offer any opinion in writing to the industry on what should be allowed” and “engaging in intimidation tactics behind closed doors.”

Coinbase eventually scrapped the project after the SEC threatened to sue the company for offering an unregistered security.

It’s so far unclear whether the regulatory appetite for crypto lending and yield products has soured or grown more urgent after the recent collapse of crypto lenders Celsius and Voyager. But after paying the $100 million fine, BlockFi may be furthest along in the process – though if it happens after New Year’s Eve and FTX US ends up purchasing BlockFi, Bankman-Fried will get that approval for free.

Read more: FTX Posted $1 Billion in Revenue Last Year Amid Crypto Rally: Report