What the hell did Voyager do with our money? | Crypto

What the hell did Voyager do with our money?

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-The recent crypto market turmoil has been headlined by a series of cascading events, including the collapse of Terra UST and the failure of famed hedge fund Three Arrows Capital (3AC). Especially notable and perhaps most impactful is the rash of distressed centralized crypto lending platforms, which have disproportionately caused harm to retail investors.

-These investors have been blindsided by the halting of withdrawals imposed by troubled firms such as BlockFi, Celsius, Voyager and many more. The headlines paint a story stranger than fiction with rumors of CEOs fleeing the country and the emergence of a latter-day John Pierpont Morgan to bail out the industry. Blockchain sleuths track the digital trail to uncover hidden wallets and obscured transactions like scenes from a Hollywood movie.

-As the dust settles, questions will undoubtedly require answers. How did crypto lenders fail? What happened to customer money? How can investors be protected going forward?

-Bits of public information, such as the Voyager bankruptcy filing, can help piece together some preliminary answers.

-Veneer of competence and security: On the surface, Voyager Digital has many attributes of a qualified business institution. Voyager is a publicly listed company, trading under the ticker VOYG on the Toronto Stock Exchange. The companys CEO, Stephen Ehrlich, had extensive experience in traditional finance (TradFi), previously serving as CEO of E*TRADE, an online platform for retail investors.

-Retail investors gut-punched: The Voyager bankruptcy filing reveals that Three Arrows Capital defaulted on loans totaling 15,250 BTC and 350 million USDC in June 2022. These loans constituted over 50% of Voyagers loan book as of its first quarter 2022 public filing. Not only were the loans uncollateralized, but they also represented a highly concentrated exposure to a single counterparty.

-Voyagers bankruptcy filing also reveals that the vast majority of its 50 largest unsecured claims are represented by customers ranging from US$9,771,026.39 down to US$955,417.27. Most of these customers are not quite large enough to be institutions and are very likely to be retail investors.

-Deposits are not all equal: It is now abundantly clear that a cryptocurrency deposit into a centralized crypto platform is nothing at all like a fiat deposit into an FDIC-insured bank. The nebulous treatment of cryptocurrency deposits under insolvency became a hot topic in May, when Coinbase disclosed in its quarterly 10-Q filing that crypto assets held on behalf of customers could be subject to bankruptcy proceedings and those customers could become unsecured creditors.

-Hard lessons learned: The bottom line is, as the experience of Voyager shows, crypto deposits at a crypto lending platform are nothing like traditional bank deposits. The key differentiation is one operates largely without regulation and the other is heavily regulated. Retail customers need a trusted

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