Voyager Digital

What did it do?

Voyager Digital was a New York-based brokerage founded in 2018 that let its users buy and sell cryptocurrency. Alongside trading, the platform paid loyalty rewards, and in 2021 the company began trading on the Toronto Stock Exchange. It lent part of the assets it held to big players in the crypto world.

Why did it shut down?

In June 2022 the company announced that crypto hedge fund Three Arrows Capital had failed to repay loans totalling $666 million. On 1 July it suspended trading, deposits, withdrawals and loyalty rewards, and on 5 July it filed for Chapter 11. In a joint letter, the Federal Reserve and the FDIC ordered the company to stop making false and misleading statements. The asset sale won by FTX fell apart with FTX's own bankruptcy in November, and the SEC filed a limited objection to the Binance.US deal that replaced it. The company ultimately went into liquidation.

The story

In June 2022 Voyager Digital gave its investors bad news: crypto hedge fund Three Arrows Capital had failed to repay loans from the company totalling $666 million. That announcement was the spark that began the end of the New York-based brokerage founded in 2018.

Voyager grew as a platform that offered users cryptocurrency trading and added loyalty rewards on top. In September 2021 it began trading on the Toronto Stock Exchange. In the years when crypto prices were rising, the model was attractive: customers kept their assets on the platform, and the company lent part of those assets out. The problem was how concentrated the risk had become. A default by a single borrower was enough to shake the company's ability to meet its obligations to customers.

On 1 July 2022 Voyager suspended trading, deposits, withdrawals and loyalty rewards; four days later it filed for Chapter 11. That same month the Federal Reserve and the FDIC ordered the company in a joint letter to stop making false and misleading statements; according to The Wall Street Journal, the issue was promises about US banking insurance. In August the court approved the return of $270 million in customer cash that had been frozen, but this was a small fraction of total investor funds.

Then the search for a rescuer began. In September Binance and FTX bid and FTX won the auction; the total value of the deal was put at around $1.42 billion, including the $1.31 billion of crypto Voyager held. In November, however, FTX itself went bankrupt. One of Voyager's major investors said this development had put $1.3 billion of investor assets at risk. In December 2022 Binance's US arm became the buyer of the assets with a bid of around $1 billion; in January 2023 the SEC filed a limited objection to the acquisition. The company ultimately went into liquidation.

Voyager's story shows how risk spreads in a chain reaction during a crypto winter. The collapse of a single borrower pushed the company into bankruptcy, and the bankruptcy process tied it to the collapse of another company that had stepped in to rescue it. Customers were left at the very end of that chain.

Lessons for founders

• Do not lend customer assets to a single large borrower; a $666 million loan to one hedge fund was enough to sink the whole company.
• Do not overstate the protections your product carries; a single sentence implying insurance or a guarantee is the first place a regulator will look.
• Even in bankruptcy, do not pin your rescue on a single prospective buyer; the rescuer can go under too.

Sources

1. Voyager Digital (Wikipedia)
2. Crypto Broker Voyager Digital Files for Bankruptcy Protection (The Wall Street Journal, 2022-07-06)
3. Bankrupt Crypto Brokerage Voyager Ordered to Cease False Promises About U.S. Banking Insurance (The Wall Street Journal, 2022-07-28)
4. SEC objects to Binance.US's deal to buy Voyager Digital (Reuters, 2023-01-05)

This section is compiled from public sources (Wikidata, news archives and company announcements). Figures are given as they appear in those sources; unknown fields are left blank. If you spot a mistake in an entry, you can send us a correction.

Is something in this entry wrong? Request a correction → Method