Crypto broker Voyager Digital Ltd. has filed for Chapter 11 bankruptcy in the US Bankruptcy Court of the Southern District of New York.
According to the filing, Voyager’s estimated assets are between $1 billion and $10 billion, with between $1 billion and $10 billion in estimated liabilities. The Toronto-based firm estimates more than 100,000 creditors.
Last Monday, Voyager issued a notice of default to beleaguered Singapore-based crypto hedge fund Three Arrows Capital (3AC), which had borrowed $675 million from Voyager in the form of 15,250 bitcoin and $350 million in stablecoin USDC.
“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 require us to take deliberate and decisive action now,” said Voyager CEO Stephen Ehrlich in a statement issued late Tuesday. “The chapter 11 process provides an efficient and equitable mechanism to maximize recovery.”
3AC’s troubles came amid a weeks-long selloff in the digital assets market, exacerbated by the $60 billion collapse of algorithmic stablecoin TerraUSD (UST) and its sister cryptocurrency Luna last month. Three Arrows Capital, which had roughly $3 billion in assets under management in April this year, had held about $200 million in Luna as well as at least $40 million in staked ether (stETH), a derivative of Ethereum’s native cryptocurrency, ether, that also suffered losses.
Additionally, 3AC had reportedly placed an overleveraged bet on the Grayscale Bitcoin Trust (GBTC) to arbitrate the difference between the value of the trust and bitcoin. GBTC shares have been trading at a discount since February 2021, which recently widened to approximately 30%, according to YCharts.
As Three Arrows failed to meet margin calls, Voyager secured credit lines from the investment arm of Alameda Research, the trading firm founded by billionaire CEO of cryptocurrency exchange FTX, Sam Bankman-Fried, and Voyager’s major investor (In May, the broker raised $60 million in a private placement offering led by Alameda. Other participants included Galaxy Digital, Blockdaemon and Digital Currency Group). The two lines of credit provided by Alameda Ventures, $200 million in cash and USD Coin and 15,000 bitcoin, were supposed to expire at the end of 2024 and carry an annual interest rate of 5% payable on maturity.
Voyager said it had approximately $137 million in cash and owned crypto assets on hand as of June 24. The following Monday, the firm Revealed he had used $75 million of Alameda’s loan to facilitate customer orders and withdrawals and engaged investment bank Moelis & Company as financial advisors. Sources familiar with the matter said Alameda Ventures does not expect to recoup that capital. Sam Bankman-Fried told Forbes in a year exclusive interview“You know, we’re willing to do a somewhat bad deal here, if that’s what it takes to sort of stabilize things and protect customers.”
Other crypto companies that had slow capital to 3AC are also struggling to stay afloat. According to a CoinDesk report, Goldman Sachs is looking to raise $2 billion from investors to buy up distressed assets from Hoboken-based crypto lender Celsius. Earlier this month, Celsius tapped restructuring attorneys from Akin Gump Strauss Hauer & Feld and Citigroup to advise on possible solutions. On July 1, FTX and crypto lender BlockFi entered an agreement that would give FTX an option to purchase BlockFi for what was described as a “variable price” that could go as high as $240 million.
This is a developing story