“We strongly believe in the future of the industry, but the ongoing volatility in the crypto markets and the default of Three Arrows Capital require us to take these decisive actions,” Voyager CEO Stephen Ehrlich said in a tweet on Wednesday.
Three Arrows Capital goes into liquidation after crypto crash
Under Voyager’s proposed bankruptcy plan, customers who held cryptocurrencies in their accounts would receive a combination of crypto, proceeds from funds collected by Three Arrows, shares in the reorganized company and Voyager tokens, the company said. Customers with cash in their accounts would be given access to those funds after the company and the Metropolitan Commercial Bank complete a reconciliation and fraud prevention process, Voyager said.
Voyager filed the reorganization petition in the US Bankruptcy Court for the Southern District of New York on Tuesday.
The filing shows Voyager has more than 100,000 creditors and lists assets and liabilities ranging from $1 billion to $10 billion.
The company said it has around $1.3 billion in crypto assets on its platform and is claiming more than $110 million in cash and its own crypto assets, which would help it sustain day-to-day operations during the bankruptcy proceedings . Another $350 million in cash held on behalf of clients is held in an account with the Metropolitan Commercial Bank, the company said in a statement.
Voyager’s financial woes underscore the high level of interconnectedness in the crypto industry. As crypto-related firms borrow from and invest in each other, risks for investors are amplified as defaults can cascade and spread.
The bankruptcy marks another episode in Crypto’s rocky year. Although legacy financial markets have also suffered from a number of economic challenges — including rising inflation, supply chain shocks from the pandemic and war in Ukraine, and the Fed’s aggressive monetary tightening — cryptocurrencies have been hit particularly hard as investors flee to safer assets and prices fluctuate.
This week, crypto lender Vauld halted all withdrawals in another instance of the broader sector meltdown that included the cratering of TerraUSD’s stablecoin and freezing of withdrawals by crypto bank Celsius.
Voyager first revealed its financial woes in late June after reports circulated of Three Arrows’ failure to meet lenders’ demands to prove additional funds as its crypto bets skyrocketed. In a widely publicized announcement, Voyager said it had issued a notice of default to Three Arrows and intended to recover the funds. The loan was accepted in the form of 15,250 bitcoin and $350 million of stablecoin USDC, a digital token whose value is pegged to the dollar. The value of the borrowed bitcoins is more than $300 million at Wednesday prices.
Crypto lender Vauld offered a lifeline a day after suspending payouts
Shortly thereafter, however, a court in the British Virgin Islands ordered Three Arrows into liquidation after failing to repay creditors as the value of Bitcoin and other cryptocurrencies plummeted. And last week, global consulting firm Teneo launched a website for potential creditors of Three Arrows Capital to file claims and get more information about the bankruptcy.
Voyager said it is pursuing all available remedies to recover funds, including through the court-supervised procedures in the British Virgin Islands and New York.