As the crypto winter worsens, the latest domino to fall is Voyager Digital, a U.S. crypto lender that announced late Tuesday it had filed for Chapter 11 bankruptcy.
Voyager CEO Stephen Ehrlich explained that the “prolonged volatility and contagion in the crypto markets” and the default of crypto hedge fund “Three Arrows Capital (3AC) on a loan from the company’s subsidiary” required it to take “deliberate and decisive action.”
The Voyager platform’s trading, deposits, withdrawals, and loyalty rewards remain temporarily suspended while the company carries out its proposed “Plan of Reorganization.”
The crypto market has been grappling with a severe liquidity crisis as platforms struggle to meet a flood of withdrawals from customers amid a sharp fall in digital currency prices. Last month Celsius suspended withdrawals on their platform, citing volatility concerns. CoinLoan, CoinFLEX, and Voyager followed suit, announcing withdrawal restrictions and halts.
In a Twitter message to customers, Ehrlich said the process would protect assets and “maximize value for all stakeholders, especially customers.” However, it is unclear how many customers will get burned and have their funds locked away to satisfy loans to secured creditors.
Voyagers, today we began a voluntary financial restructuring process to protect assets on the platform, maximize value for all stakeholders, especially customers, and emerge as a stronger company. Voyager will continue operating throughout.https://t.co/TxlO4eua8E
— Stephen Ehrlich (@Ehrls15) July 6, 2022
Voyager had previously guaranteed that “all customers’ USD held with Voyager was FDIC (Federal Deposit Insurance Corporation) insured up to $250,000.” Despite this guarantee made in December 2019, Voyager’s Customer Agreement, updated on January 7, 2022, states, “FDIC insurance does not protect against the failure of Voyager or any Custodian.”
“Voyager’s bankruptcy filing basically confirms that the crypto lender did use its customers’ funds as a source of dollar liquidity and lent them to entities like 3AC as a leveraged trade of sorts while it would constantly borrow money itself to meet current withdrawal requests,” said Mikkel Morch, executive director at crypto hedge fund ARK36 (Three Arrows Capital).
Voyager says it has approximately $1.3 billion in crypto assets on its platform, $350 million of cash held in an FBO (For Benefit of Customers) account for customers at a metropolitan commercial bank, and over $110 million in cash and “owned crypto assets” on hand. The company also has claims against Three Arrows Capital of more than $650 million.
Cryptocurrency users are looking at Voyager’s Chapter 11 filing as a test case to determine how “secure” customers’ funds are when held on major exchanges or with crypto lenders.