Cryptocurrency broker Voyager Digital filed for bankruptcy on Tuesday in the wake of the collapse of the major crypto hedge fund Three Arrows Capital (3AC). Voyager’s Chapter 11 filing comes just days after 3AC filed for bankruptcy — and about a week after 3AC defaulted on a loan provided by Voyager.
In a press release, Voyager Digital states that it has about $1.3 billion worth of crypto assets on the platform, $110 million in cash and crypto assets on hand, and the $350 million it holds in an FBO (For-Benefit-Of) account for customers. It also says 3AC still owes more than $650 million.
Voyager CEO Stephen Ehrlich blames the company’s financial struggles on “the prolonged volatility and contagion in the crypto markets” as well as 3AC’s failure to repay its debt. “The chapter 11 process provides an efficient and equitable mechanism to maximize recovery,” Ehrlich added.
Companies like Voyager Digital use a Chapter 11 filing when they plan on reorganizing their debts while still remaining operational. Voyager Digital outlined a proposed course of action in its press release, stating it will give customers “a combination” of the crypto held in their accounts, the recovered funds from 3AC, company shares, and Voyager tokens (which are currently worth about 21 cents each). The company says customers who currently have USD deposits in their accounts will only regain access “after reconciliation and fraud prevention process is completed with Metropolitan Commercial Bank.” This plan still needs to be approved by the court.
Voyager paused all trading, withdrawals, and deposits last week after announcing that 3AC failed to repay its loan. In June, Sam Bankman-Fried, the billionaire CEO of trading firms FTX and Alameda Research, extended a $500 million line of credit to Voyager in an attempt to help it cope with the uncertain market. Bankman-Fried’s Alameda Research also invested $75 million in Voyager last year, which the Chapter 11 filing lists as the company’s largest unsecured claim.
The crypto crash is showing just how intertwined crypto firms really are, with the temporary shutdown of crypto lenders Celsius and Babel Finance preceding Voyager and 3AC’s bankruptcy filings. Earlier this week, crypto lending and trading startup Vauld also suspended all transactions, but it seems we’re yet to see how far the fallout will reach.