‘Crypto contagion’ hits Voyager: Digital currency broker files for bankruptcy

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Voyager Digital, the company that lets its users invest in over 100 digital currencies, has filed for Chapter 11 bankruptcy. CEO Stephen Ehrlich says the company will be using Chapter 11 protection to begin restructuring the enterprise in a way that will maximize the value for its stakeholders.

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

Digital currency insolvency

Recent events in the blockchain and digital asset market have had a (negative) domino effect on major market participants and service providers. Many people are referring to these events and their effects as “the crypto contagion.”

When Terra’s stablecoin collapsed, the hedge fund with the largest position in it—Three Arrows Capital (3AC)—went under and the companies that loaned 3AC money, like Voyager who loaned them 15,250 BTC and $350 million USDC, have been significantly impacted by the financial hole 3ACs insolvency has left in their balance sheet. According to Voyager’s official announcement, the firm has claims against Three Arrows Capital 3AC of more than $650 million. 

In an attempt to mitigate further financial damage, Voyager lowered its daily withdrawal limit to $10,000 from $25,000, received a $200 million USD/15,000 BTC revolving credit line from Sam Bankman-Fried’s Alameda Research, and then shortly afterward, suspended all trading, deposits, withdrawals, and loyalty rewards. Ultimately, these efforts were not enough to keep the company afloat, and Voyager as well as its main operating subsidiaries filed voluntary petitions for reorganization under Chapter 11 Bankruptcy.

“This comprehensive reorganization is the best way to protect assets on the platform and maximize value for all stakeholders, including customers,” said Stephen Ehrlich, Chief Executive Officer of Voyager. 

“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.”

Voyager creditors

According to the filing, Voyager has more than 100,000 creditors and between $1 billion – $10 billion of liabilities—its largest creditor is Alameda Research which has an unsecured claim of $75 million.

Voyager says that its customers will receive a combination of digital currencies, proceeds from the 3AC recovery, common shares in the newly reorganized company, and Voyager tokens upon court approval. It also says that account access will be re-instated in the future.

For individuals who had U.S. dollar in their Voyager accounts, Voyager says that those users will receive access to their USD after a reconciliation and fraud prevention process is completed with Metropolitan Commercial Bank.

While some believe that more digital currency companies will announce that they are insolvent and filing for bankruptcy, Sam Bankman-Fried recently told Reuters that the worst of the contagion is over.

“We’re starting to get a few more companies reaching out to us,” Bankman-fried told the news outlet.

“Those firms are generally not in dire situations, though some smaller crypto exchanges may still fail,” he said, adding that the industry has moved beyond “other big shoes that have to drop.”

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple, 
Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.