Bankruptcy & Crypto: Lessons from FTX, Celsius, and Voyager
Major cryptocurrency bankruptcies have tested insolvency frameworks designed for traditional assets. The FTX, Celsius, and Voyager proceedings offer critical lessons for creditors and industry participants.
1 min read
Key Cases Overview
FTX
- Filed November 2022 with estimated $8B+ shortfall
- Commingling of customer and company funds
- Complex international structure across 130+ entities
- Criminal proceedings against former executives
Celsius Network
- Filed July 2022 with $1.2B hole
- Disputed ownership of customer deposits
- Terms of service as property rights determinant
- Earn vs. Custody account distinctions
Voyager Digital
- Filed July 2022 following 3AC default
- Multiple sale attempts
- Regulatory obstacles to asset sales
- Customer recovery rates
Legal Issues
Property Ownership
Central questions include:
- Whether customer crypto is estate property or customer property
- Impact of terms of service on ownership
- Tracing rights for commingled assets
- Priority of customer claims
Cryptocurrency Valuation
Timing issues affect recovery:
- Petition date vs. distribution date valuation
- In-kind vs. cash distribution options
- Price volatility during proceedings
Customer Protections
Lessons for crypto users:
- Review terms of service carefully
- Understand custody vs. lending arrangements
- Consider self-custody for significant holdings
- Diversify counterparty exposure
Regulatory Implications
Bankruptcies have prompted:
- Calls for mandatory segregation of customer assets
- Enhanced disclosure requirements
- Reserve and capital requirements
- Regular auditing mandates
