BlockFi Bankruptcy: Proposed Stablecoin Switch for Trade-Only Wallets and Legal Scuffles

An intricate 3D scene of a crumbling bank, faded in shaows, symbolizing a bankruptcy narrative. The weathered edifice should display various cryptocurrencies like Bitcoin, Ethereum, and Dogecoin embedded in its structural cracks, replaced by shining coins stamping 'Stablecoin'. It should convey a transition process, in moody monochromatic scheme, under a gloomy dusky light setting, rendering a suspenseful mood.

In a rather complicated turn of financial affairs, Bankrupt crypto lender, BlockFi, has submitted an action request to the District of New Jersey’s US bankruptcy court. They’ve been seeking the go-ahead to transition “trade-only” wallet assets into stablecoin forms, essentially creating an avenue for wallet users to make withdrawals. A profound notion considering that such assets account for less than half a percent of all BlockFi user wallets in the United States. This collection spans across various digital currencies, including Algorand (ALGO), Bitcoin Cash and Dogecoin.

To clarify, trade-only tokens are available for trading across diverse Spot and Margin markets, albeit their wallets remain inactive. The assets in question are not currently ready for withdrawal due to particular limitations that exist. Consequently, BlockFi has put forward a proposal for a limited-time conversion of these trade-only assets into Gemini Dollar or alternative stablecoins of their preference.

The story runs deeper, with other digital assets like Cardano, Solana, Avalanche, Polygon, and more held separately by BlockFi International. This strategy, as BlockFi points out, will facilitate a thorough withdrawal process for all wallet-based assets.

This recent development comes in the wake of BlockFi‘s decision in August to allow crypto withdrawals for qualified US user wallets, a move aimed at respecting a court order. The eligible clients at that point were American-based BlockFi Wallet account holders who held no trade-only assets and did not transfer or withdraw approximately $7,575 worth of digital assets such as Bitcoin and Ether.

In another contentious incident, BlockFi recently unleashed a legal challenge on FTX exchange and Three Arrows Capital, both accused of exploiting the company. In a court filing last week, BlockFi took issue with the two firms over a payment dispute, arguing that they are not entitled to $5 billion that the company is still in the process of recovering.

With a yet-to-be-announced hearing date, BlockFi assures that it will provide prior notice to impacted clients in possession of trade-only assets. The BlockFi saga, hence, continues to unfold, spotlighting the profound and rather unpredictable effects of crypto on financial markets.

Source: Cryptonews

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