Cryptocurrency
Cryptocurrency is a digital means of storing value employing "blockchain" technology. In essence, cryptocurrencies are records of transactions that have taken place on a string of computer code known as the blockchain. Each crypto "coin" is a portion of blockchain signifying a verified transaction. The inventor of bitcoin defined it as "a chain of digital signatures. Each owner transfers bitcoin to the next by digitally signing a hash of the previous transaction and the public key of the next owner and adding these to the end of the coin. A payee can verify the signatures to verify the chain of ownership."1 And, while every bitcoin transaction is publicly viewable, the parties to the transaction can remain anonymous. Various forms of cryptocurrency, from Bitcoin to Etherum to Solana, are widely available on many platforms. However, the Voyager bankruptcy appears to be largely the result of contagion from a specific "stablecoin" that was (in theory) backed by—or "pegged to"—actual currency.
At first blush, Voyager's business was typical of many financial services firms, providing its customers (i) brokerage services, (ii) custodial services, and (iii) lending services. At the time of filing,
Voyager's brokerage services provided its customers a platform to facilitate cryptocurrency trading across a variety of cryptocurrency exchanges. Much like a traditional trading desk, Voyager served as an intermediary between buyers and sellers of cryptocurrency on a variety of crypto markets or exchanges.
Voyager's custodial services permitted customers to "deposit" cryptocurrency onto the Voyager platform, and, in return, earn interest on the deposit. The form of interest was primarily paid either in (i) PIK interest, i.e. interest paid in the form of bitcoin deposited, (ii) Voyager's own cryptocurrency which provided additional account enhancements, or (iii) a "staked" value at the time of deposit which would be available only after a fixed period of time.
Voyager's lending services permitted customers to "borrow" bitcoin (deposited by customers) at pre-negotiated interest rate. The repaid interest was then used to pay, among other things, the interest to customers that deposited bitcoin onto Voyager's platform.
The "Cryptopocalypse"
The months leading up to the Voyager bankruptcy were marked by a groundswell of economic decline in the cryptocurrency industry, fittingly dubbed the "Cryptopocalypse." From
In
Three
The Bankruptcy
The negative impact of the
Just one week prior to the bankruptcy, on
On
The company announced that it would be embarking upon a "dual-track" restructuring process—which will result in either (x) a sale of the company or (y) the issuance of equity in the reorganized company to its customers. Voyager expects to fund a plan of reorganization with "(a) cash, (b) Coins, (c) Voyager Tokens, (d) the Three Arrows Capital Recovery, and (e) New Common Stock." Essentially, this "placeholder" plan is no more than a summary of the typical options available to any entity in bankruptcy.
Considerations
In many respects, the Voyager bankruptcy is charting the well-worn path of chapter 11 reorganization using the various tools in the restructuring toolbox (i.e., the automatic stay, a potential debt for equity swap, a potential free and clear sale). Many routine bankruptcy issues are readily evident early on in these cases: (a) whether and to what extent there is preference exposure for withdrawals made in the 90 days leading up to bankruptcy; (b) whether and to what extent are there claims against company leadership arising out of Voyager's prepetition transactions; and (c) whether and to what extent customers are secured to the extent that they deposited cryptocurrencies onto Voyager's platform.
However, Voyager's primary business—cryptocurrency—and the contagion in the crypto world charts unfamiliar territory that has baffled investors, regulators, and lay persons since cryptocurrency's entry into the public sphere. Given the volatile nature of cryptocurrency, this bankruptcy is likely to set precedent with respect to valuing digital assets, related claims, and the ability to confirm a plan with cryptocurrency as a means for implementation. As the debtors embark upon confirming a plan, novel issues around identifying and noticing Voyager's creditor constituencies, the adequacy of the company's disclosure of its reorganization plan, and a myriad of other issues will unfold.2 And, as the
Footnotes
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2. As of the date of this publication, another crypto lending firm, Celsius Network. filed for chapter 11 relief in the bankruptcy court for the
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