In a long-awaited decision, a court has granted approval for Voyager Digital, the beleaguered crypto lending platform, to begin the process of repaying its customers’ funds that have been trapped for months. However, the repayment comes with a caveat, as customers will only receive 36% of the amount owed to them. The approval to commence liquidation procedures marks a significant milestone in a turbulent journey that started when Voyager froze customer withdrawals in July 2022, following the bankruptcy filing by Three Arrows Capital (3AC), a defunct hedge fund.
Unsatisfactory Bankruptcy Process
Judge Michael Wiles, presiding over the case, acknowledged that the liquidation process had faced criticism from customers dissatisfied with the proceedings. Common concerns included the high cost of the bankruptcy, the substantial fees paid to lawyers, insufficient oversight of the case, and the fractional returns creditors would receive.
However, Judge Wiles emphasized that the lack of funds necessitated this course of action. While acknowledging the shortcomings, he said, “Hindsight’s 20/20 – I’m sure everybody wishes that something better had happened. We are where we are, we’re trying to do the best with where we are.”
Voyager’s misfortunes continued even after filing for bankruptcy. Initially, the platform sought a buyout deal with FTX, a prominent crypto exchange. However, FTX’s implosion in November put an end to that plan. Subsequently, Voyager’s creditors subpoenaed FTX’s executives, seeking information about the buyout offer and investigating whether it was a legitimate proposition or a mere publicity stunt.
As if one setback wasn’t enough, Voyager’s $1 billion buyout agreement with Binance US also fell through recently. The company cited a “hostile and uncertain regulatory climate in the United States” as the reason for pulling out of the deal.
The Challenging Financial Landscape
As the court-approved repayment process begins, Voyager faces the daunting task of distributing funds with limited resources. According to a court filing on May 5, the platform currently holds only $630 million, a fraction of the $1.8 billion in customer claims.
The financial situation might improve if Voyager’s ongoing dispute with FTX yields positive results. Any additional holdings recovered from this conflict would boost the available funds for customer repayment. However, the outcome remains uncertain, and it is unclear how much of a difference it would make in the overall picture.
With the green light to start repaying customers, Voyager must now navigate the repayment process diligently and transparently. Rebuilding trust with their customer base is crucial for the platform’s future viability. Implementing effective communication channels and providing regular updates on the progress of repayments can go a long way toward restoring confidence. Additionally, ensuring that adequate safeguards and oversight are in place to prevent similar situations from occurring in the future will be imperative.