Voyager Digital Files for Bankruptcy as Terra Luna’s Contagion Looms

Beleaguered crypto broker Voyager Digital has filed for bankruptcy, citing the prolonged volatility and contagion. The move comes less than a week after crypto hedge fund Three Arrows Capital (3AC), which had borrowed significant sums from a number of top crypto lending companies, filed for bankruptcy. 

Voyager Digital files for Chapter 11 Bankruptcy Protection

Voyager has filed for Chapter 11 bankruptcy protection, becoming the latest victim of turmoil in the digital assets market. The company announced the news on Wednesday, a week after it suspended withdrawals, trading, and deposits to its platform. 

In its Chapter 11 bankruptcy filing on Tuesday, The New Jersey-based company said it has started bankruptcy proceedings in the U.S. Bankruptcy Court of the Southern District of New York. Voyager estimated that it had more than 100,000 creditors and somewhere between $1 billion and $10 billion in assets, and liabilities worth the same value.

In a press release, the company detailed that it has over $110 million of cash, more than $350 million of cash held in the For Benefit of Customers (FBO) account at Metropolitan Commercial Bank, approximately $1.3 billion worth of crypto assets on its platform, and claims against 3AC of more than $650 million.

A huge portion of Voyager’s loss comes from its exposure to crypto hedge 3AC, to whom the company had lent 15,250 BTC (approximately $300 million) and $350 million worth of USDC. Last week, the company issued a notice of default to 3AC for failing to service the loan.

Stephen Ehrlich, Chief Executive Officer of Voyager, claimed that the recent crypto meltdown, as well as 3AC’s bankruptcy, has forced the company to file for bankruptcy. He said:

“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.”

How Contagion form Terra’s Impolsion Reached Voyager

In early May, Terra’s algorithmic stablecoin UST lost its intended dollar peg, which led to the collapse of the entire ecosystem within a couple of days. Prior to the collapse, there was more than $40 billion in the Terra ecosystem, nearly all of which evaporated. Aside from retail investors, a number of big players were also hit by the crash.

One such player was crypto fund 3AC, which confirmed heavy losses from the implosion of Terra. According to a WSJ report, the fund had invested over $200 million in LUNA tokens as part of a $1 billion raise by the Luna Foundation Guard in February, an investment that became essentially worthless after LUNA’s hyperinflation.

Troubles for 3AC meant troubles for some of the industry’s top lending companies, which had offered the fund significant loans. These include BlockFi, Voyager as well as crypto lender Genesis Trading, which reportedly suffers “hundreds of millions” in losses due to its exposure to 3AC. 

Meanwhile, contagion might further spread in the industry as the collapse of Voyager would put other crypto companies that have exposure to the crypto lender in a bad position. For one, this could affect Samuel Bankman-Fried’s Alameda Research, which had invested $75 million in Voyager in late 2021.

What other crypto firms could take a hit as contagion spreads across the industry? Let us know what you think in the comments below. 

About the author

Ruholamin Haqshanas is an accomplished crypto and finance journalist with over two years of experience writing in the field. He has a solid grasp of various segments of the FinTech space, including the decentralized iteration of financial systems (DeFi), and the emerging market for non-fungible tokens (NFTs). He is an active user of digital assets for remittances.