Why Has Crypto Lender Voyager Filed For Bankruptcy?7 min read

Crypto brokerage, Voyager Digital, filed for bankruptcy last month, and its clients are not taking the news lightly. On July 1st, Voyager announced it temporarily suspended tradings, deposits, and withdrawals using its platform. Stephen Ehrlich, the CEO of Voyager Digital, explained, “this was a tremendously difficult decision.” Yet, they believe it’s “the right one given the current market conditions.” He also mentioned that this is the best outcome to “continue exploring strategic alternatives with various interested parties while preserving the value of the Voyager platform.”

Nevertheless, Voyager and its subsidiaries filed for bankruptcy in New York only a few days later. The crypto brokerage is not the first to succumb to this fate, as other crypto lenders like Celsius, Valud, and Babel Finance are on the same path.

What Is Voyager Digital?

Until recently, Voyager seemed to have a promising future. It was established in 2017 by current CEO Stephen Ehrlich. It offers organizations and individuals financial services similar to banks, from crypto loans to order executions to custodial services. Additionally, its platform is a host for over 100 cryptocurrencies, including VGX, its native token.

Voyager boasted a user base of 3.5 million and total assets equaling $5.9 billion. It grew exponentially during the pandemic since it provided users with flexible lending programs. As well as a hefty APY for maintaining a minimum balance of different cryptocurrencies. However, despite Voyager’s best efforts, the undoings of the recent market took a toll on its ability to perform its services. Hence, its bankruptcy.

Why Did Voyager File For Bankruptcy?

Voyager Digital filed for chapter 11 proceedings in the U.S Bankruptcy Court of the Southern District of New York. A chapter 11 bankruptcy will enable Voyager to restructure its financial obligations, such as its business affairs, debts, and assets. In the meantime, it can still remain operational.

3AC’s Contagion

Voyager filed for bankruptcy

Voyager’s filing for bankruptcy is merely the latest casualty of a notable blockchain collapse. In May, the Terra protocol, known for its algorithmic stablecoin, TerraUSD, and its staking token, LUNA, witnessed a horrific crash that rippled its effect onto the entire market, resulting in what now is called the “Crypto Winter.”

Singapore-based crypto hedgefund, Three Arrows Capital (3AC), was deeply entangled in Luna’s collapse. The company, Voyager’s largest borrower, had between $200 million to $600 million worth of Luna disappear in a matter of hours. A report made by the Financial Times mentioned that, following the collapse, 3AC failed to meet margin calls to several crypto lenders, including BlockFi, who later had its positions liquidated. On June 27th, a British Virgin Island court ordered the hedge fund into liquidation. Days later, it filed for chapter 15 bankruptcy in the Southern District of New York.

Three Arrows Co-Founder Su Zhu took to Twitter to say, “We are in the process of communicating with relevant parties and fully committed to working this out.” However, it’s unclear who the parties in question are. Documents filed in court state that Three Arrows Co-Founders Su Zhu and Kyle Davies, have yet to cooperate with any liquidation proceedings. Additionally, the documents allege that the founders’ whereabouts are currently unknown.

The Bankruptcy

It was known that Voyager had made massive unsecured loans to the failed hedge fund, whose liquidation process had a consequential effect on the crypto lender. On June 22nd, a week before Voyager filed for bankruptcy, it borrowed a total of $500 million from Alameda Ventures Ltd. to stabilize its liquidity. Then on June 23rd, Voyager limited withdrawals on its platform from $25,000 to $10,000.

By July 1st, the company announced it had suspended all tradings and withdrawals due to 3AC’s default on Voyager’s loan of 15,250 Bitcoins and $350 million USDC. The company hired Moelis & Company as its financial advisor to further discuss legal remedies with 3AC.

Alongside the announcement, Ehrlich tweeted, “Voyager is actively pursuing all available remedies for recovery from 3AC, including through the court-ordered liquidation process in the British Virgin Islands.”

On July 5th, Voyager announced it filed for chapter 11 bankruptcy protection in New York. Meanwhile, a chapter 15 petition was filed for its Canadian subsidiaries. The court document states, “the Debtors are facing a short-term “run on the bank” due to the downturn in the cryptocurrency industry generally and the default of a significant loan made to a third party.”

What’s Next For Voyager?

According to Voyager’s press release, the company has over $110 million in cash to assist with its day-to-day operations, $350 million held in its For Benefit of Customers (FBO) account at the Metropolitan Commercial Bank, and $1.3 billion in crypto assets. Under its proposed Plan of Reorganization, Voyager customers with a combination of crypto in their account will be exchanged with proceeds from the 3AC recovery, shares in the reorganized company, and Voyager tokens.

“Voyager’s platform was built to empower investors by providing access to crypto asset trading with simplicity, speed, liquidity, and transparency. While I strongly believe in this future, the prolonged volatility and contagion in the crypto markets over the past few months, and the default of Three Arrows Capital (“3AC”) on a loan from the Company’s subsidiary, Voyager Digital, LLC, require us to take deliberate and decisive action now. The chapter 11 process provides an efficient and equitable mechanism to maximize recovery.”

Stephen Ehrlich, “Voyager Digital Commences Financial Restructuring Process to Maximize Value for All Stakeholders.”

Sam Bankman-Fried, the founder of Alameda Ventures Ltd. and crypto exchange FTX, proposed a joint plan to offer Voyager early liquidity. The proposal states that Voyager customers will have the ability to access their frozen funds through new accounts with FTX. However, the crypto lender described the offer as a “lowball bid dressed up as a white knight rescue.” By making the proposal public, Voyager believes that Bankman-Fried violated the obligations of debtors and the court and said it “reserves all rights and remedies against Alameda [and] FTX for its clear and intentional subversion of the bankruptcy process.”

Final Thoughts: Are Crypto Platforms Coming To An End?

This crypto winter had many thinking this is the end for crypto platforms. Although that’s true for several, platforms like Binance and Nexo are still standing strong. On July 5th, Nexo announced its plans to acquire failed crypto lender, Valud. This comes as great news to Valud users, who, at some point, lost hope in accessing their funds. One Reddit user expressed his delight, “I always knew Nexo was on top of it with their business model. This will actually put them on top good for Nexo!”

Binance, on the other hand, has a strong stance on the crypto market due to its feasible business plans. Apparently, it has no fear of the recent market crash, and it’s planning on expanding big into Europe. In April, the crypto exchange, who’s also a viable crypto lender, announced its new 100 million Euro initiative, classified as Objective Moon. This initiative will assist in building Web3 projects at the startup incubator Station F, held in Paris. Binance also chose Paris as its European hub by expanding its office from 50 staff to 250.

So, the answer to the question is, no, crypto platforms are not coming to an end. I believe it’s quite the opposite, actually. You can think of the latest crypto platform casualty as a survival of the fittest campaign, and those who survive in this market are in it for the long run.