Crypto brokerage Voyager Digital filed for Chapter 11 bankruptcy protection Tuesday in the Southern District of New York, the company announced in a statement Wednesday.
“Prolonged volatility in the crypto markets, and the default of Three Arrows Capital, require us to take this decisive action,” Voyager CEO Stephen Ehrlich wrote on Twitter early Wednesday.
Three Arrows, a Singapore-based crypto hedge fund known for making aggressive bets that crypto prices would rise, defaulted last week on a loan of more than $650 million from Voyager — $350 million worth of the stablecoin USDC and 15,250 Bitcoin ($305.9 million). Three Arrows later filed for Chapter 15 bankruptcy, allowing foreign debtors to shield U.S. assets.
Voyager is pursuing a recovery of those funds, including through court-supervised proceedings in the British Virgin Islands and New York, it said.
The bankruptcy petition aims to protect Voyager from legal claims while it restructures. In its statement, Voyager said it has more than 100,000 creditors and liabilities of between $1 billion and $10 billion.
The company has roughly $1.3 billion in cryptocurrency on its platform and holds more than $350 million in cash in an account at Metropolitan Commercial Bank for the benefit of customers, it said.
It also has more than $110 million of cash and owned crypto assets on hand, which is meant to provide liquidity to support day-to-day operations, the company said. Voyager intends to pay employees in the usual manner and continue their primary benefits and certain customer programs without disruption, Reuters reported.
Barring unforeseen circumstances, customers will receive a combination of crypto in their accounts, along with proceeds from the Three Arrows recovery, shares of the reorganized company, and Voyager tokens.
Clients with U.S. dollar deposits in their accounts “will receive access to those funds after a reconciliation and fraud prevention process is completed with Metropolitan Commercial Bank,” Ehrlich tweeted.
Voyager on Friday suspended trading, deposits, withdrawals and loyalty rewards — a move meant to allow the company to explore “strategic alternatives with various interested parties.” That temporary policy remains in effect, Ehrlich said.
Alameda Research, owned by FTX CEO Sam Bankman-Fried, was listed as Voyager's largest creditor in the bankruptcy filing, with an unsecured claim of $75 million — the amount Voyager reportedly drew down within a 30-day span. Alameda gave Voyager a credit line worth about $485 million in mid-June.
But Alameda is more than a lender to Voyager; it borrowed $376.8 million in cryptocurrencies from Voyager at rates between 1% and 11.5%, the filings show. It’s also a shareholder, claiming a stake of more than 9% in Voyager, Bloomberg reported.
Alameda “seems to be wearing every possible hat in Voyager’s bankruptcy,” Adam Levitin, a professor at Georgetown Law, told The Wall Street Journal.
“There is a general phenomenon of a lot of recycled capital within crypto, and this is an example of that,” he said. “The money that was lent to Alameda is money that will ultimately be returned, and presumably used to pay back customers.”
Bankman-Fried has positioned himself as a lender of last resort in the crypto sphere. FTX agreed Friday to a deal that would increase its revolving credit facility to BlockFi to $400 million — from $250 million previously — but give FTX the option to buy BlockFi for up to $240 million.
Bankman-Fried called the Voyager bankruptcy filing unfortunate but said quick investments in distressed assets occasionally yield losses.
“If your strategy for trying to extend a lifeline to companies in need results in you never doing it to a company that files for bankruptcy, then you probably weren’t doing your job,” he told The Wall Street Journal.
Voyager shares dropped 42% on Monday. The Canadian company has shed 97.6% of its market value since the beginning of 2022, falling from C$2.7 billion to C$66 million, according to Bloomberg.
A number of crypto firms have seen significant liquidity hurdles this year as customers race to withdraw funds amid a precipitous drop in the value of digital currencies. Bitcoin, for example, lost 38% in June alone, CNBC reported.
“Voyager’s bankruptcy filing basically confirms that the crypto lender did use its customers’ funds as a source of dollar liquidity and lent them to entities like [Three Arrows] as a leveraged trade of sorts while it would constantly borrow money itself to meet current withdrawal requests,” Mikkel Morch, executive director at crypto hedge fund ARK36, told Bloomberg.
