- By Amy Castor and David Gerard
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In our last episode, Voyager Digital was looking shaky. Voyager had a massive hole in its balance sheet, courtesy of Three Arrows Capital (3AC), which had imploded. Voyager had maxed out its line of credit from Alameda for the month — it could only withdraw $75 million in credit for each 30-day rolling period.
On Friday, July 1, Voyager announced it was “temporarily suspending trading, deposits, withdrawals and loyalty rewards.” [Voyager, archive; WSJ]
How screwed is Voyager? Three-quarters of their assets — about $600 to $700 million in BTC and USDC owed by 3AC — are missing. [Press release; Yahoo Finance]
How screwed are Voyager’s customers? “Your debit card will stop working … exploring strategic alternatives,” the crypto broker said. “We are in discussions with various parties regarding additional liquidity and the go-forward strategy for the company.” [Voyager blog, archive]
Whoever had Voyager Digital next in the DeFi dead pool: you may now claim your 100 trillion luna.
Voyager is — or was — a crypto investment firm. You deposited dollars or crypto into Voyager, and you earned up to 12% interest on your deposits via their Earn program. The company claimed 3.5 million customers.
It also had a mobile app that allowed you to trade 100 different cryptocurrencies commission-free. [Voyager, archive]
Voyager was a “CeFi” company, or centralized DeFi — an investment firm that played the DeFi markets.
It also offered a debit card. Customers deposited dollars, which were immediately converted to the USDC stablecoin, which Voyager paid a yield of up to 9% on. “Earn like crypto, spend like cash.” [Voyager, archive]
Voyager very much wanted its customers to treat the company like their bank — and deposit their money. It encouraged customers to directly deposit their paychecks into their Voyager debit card account.
It’s not a bank, though. We’ll see in a moment why that turned out to be important.
The company offered “even greater rewards” if you owned their VGX token! This was aimed squarely at the cryptocurrency audience: “When it comes to your crypto, every satoshi counts.” With VGX you could get up to a 12% yield! [Voyager; archive]
At the end of March 2022, Voyager got cease-and-desist letters and orders to show cause from the states of New Jersey, Alabama, Oklahoma, Texas, Kentucky, Vermont, and Washington — who considered Voyager’s yield platform to be an unregistered offering of securities. [CoinDesk; press release]
Here is Voyager’s press release for their Q3 2022 numbers, released on May 16. (Voyager’s financial year is July to June, so January to March is Q3.) The headline announced that revenue was up — $102 million! [Voyager, archive]
But the numbers show that year-over-year losses were also way up — Voyager had operating losses of $43 million. The company was burning money to pump up revenue and user numbers. Voyager promoted both these numbers to investors in June 2022 without mentioning the losses that were getting it there. [Voyager, archive]
The Q3 2022 numbers were announced when UST and luna had gone to zero, and Terraform’s Anchor protocol had collapsed. Voyager CFO Evan Psaropoulos said on the quarter’s earnings call: [Seeking Alpha]
“It is important to note with recent news related to UST and LUNA, that Voyager does not have UST listed on the platform and has not placed any access in any DeFi lending protocols such as the Anchor platform.”
But it turned out that Voyager was heavily exposed to UST, luna, and Anchor — via their largest debtor, Three Arrows Capital. The guys at 3AC knew they were in terminal trouble, but hadn’t told anyone yet — including their creditor, Voyager.
In the Q3 2022 earnings call, voyager CEO Steve Ehrlich said:
“We also spoke to all of our counterparties on lending and verified that there were no issues. In the past, we’ve had questions from investors about one counterparty. And as of today, we have no exposure to that counterparty.
… the people we lend to are some of the biggest names in the industry. As we stated, too, we had conversations and verified there was no contagion with them, had conversations with every single one of them. And since we limit who we lend to, to these parties, we’re really comfortable we did not have to call anything in and we had zero issues with any of our borrowers.”
Which counterparty could that have been?
Voyager released new financials yesterday afternoon, July 1, as part of its announcement that it was suspending withdrawals, detailing the 3AC-shaped hole in their numbers.
Is Voyager FDIC insured? No, but they’d like you to think so
If you had dollars on deposit with Voyager, you should assume they’re gone and not coming back.
Voyager tried very hard to imply in the large print that customer deposits were insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC) if something happened to Voyager — and only admitted in the small print that they weren’t. Voyager tweeted on November 12, 2020: [Twitter; archive]
“Have you heard? USD held with Voyager is FDIC insured up to $250K. Our customers’ security is our top priority. Start growing your crypto portfolio today.”
But your dollars had already been converted into USDC. Voyager then used the USDC, a liability to you, as collateral for loans it took out elsewhere. The user agreement explicitly allows this: [Voyager, archive]
“Consent to Rehypothecate. Customer grants Voyager the right, subject to applicable law, without further notice to Customer, to hold Cryptocurrency held in Customer’s Account in Voyager’s name or in another name, and to pledge, repledge, hypothecate, rehypothecate, sell, lend, stake, arrange for staking, or otherwise transfer or use any amount of such Cryptocurrency, separately or together with other property, with all attendant rights of ownership, and for any period of time and without retaining a like amount of Cryptocurrency, and to use or invest such Cryptocurrency at Customer’s sole risk.”
Your dollars were transformed into Voyager’s USDC the moment you deposited.
Voyager has an omnibus account with Metropolitan Commercial Bank, where it deposited its customers’ dollars. An omnibus account is a single holding account for money from multiple investors. Voyager acts as the money manager of the omnibus account — and maintains full control of the money.
Pass-through FDIC insurance, which would cover the customers and not just Voyager, is a bit tricky. You have to meet several requirements. Fundamentally, the funds need to be a liability of the bank, e.g., Metropolitan, not the account holder, e.g., Voyager. [FDIC; Seward & Kissel LL]
If Metropolitan failed, the FDIC insurance would cover Voyager up to $250,000. But Voyager’s customers were not FDIC insured. And Metropolitan is doing just fine.
Voyager repeatedly and consistently led customers to believe their US dollar deposits were safe if Voyager failed.
Usually, Voyager just tried to imply that customer deposits were directly FDIC-insured — and then detailed in the fine print how this wasn’t the case. Occasionally, Voyager slipped up and claimed this directly, such as in this blog post of December 18, 2019: [Medium, archive]
“Through our strategic relationships with our banking partners, all customers’ USD held with Voyager is now FDIC insured. That means that in the rare event your USD funds are compromised due to the company or our banking partner’s failure, you are guaranteed a full reimbursement (up to $250,000). We’re excited to offer our customers an extra level of security, so they can feel more comfortable holding their USD with Voyager.” [emphasis ours]
Let’s say that again: “you are guaranteed a full reimbursement”
This claim was simply not true.
Metropolitan Bank has issued a statement on Voyager and FDIC insurance — we expect they’ve been getting a lot of calls from Voyager customers: [Metropolitan, archive]
“FDIC insurance coverage is available only to protect against the failure of Metropolitan Commercial Bank. FDIC insurance does not protect against the failure of Voyager, any act or omission of Voyager or its employees, or the loss in value of cryptocurrency or other assets.”
Several Voyager customers on Reddit were very confused about all of this. Many were trying to figure out how to file an insurance claim to get their cash back. Others were learning for the first time that their dollar deposits were not, in fact, safe. [Reddit; Reddit]
Reddit user DannyDaemonic called up the FDIC: [Reddit]
“I called the FDIC earlier and they said Voyager Digital LLC was not a bank and was not FDIC insured. They said for future reference, LLCs cannot be banks, ever. So when you see “LLC,” any claim of FDIC insurance is false. They did confirm that Metropolitan Bank is FDIC Insured but just because Voyager Digital stated “each Customer is a customer of the Bank” doesn’t mean they were funding those accounts. It just means if Metropolitan Bank failed, any holdings Voyager Digital placed under your name there would be safe. But since it’s only Metropolitan Bank that’s FDIC insured, Voyager Digital failing wouldn’t trigger the FDIC insurance.
I imagine Voyager is allowed to withdrawal from those accounts to pay debt or make investments. It’s also possible, if Voyager Digital is insolvent, that they haven’t even been depositing cash into the Metropolitan Bank for quite some time.
It doesn’t look good.”
The precise law that Voyager seems to be playing fast and loose with is 18 USC 709 — “False Advertising or Misuse of Names to Indicate Federal Agency”: [Onecle]
“… or falsely advertises or otherwise represents by any device whatsoever the extent to which or the manner in which the deposit liabilities of an insured bank or banks are insured by the Federal Deposit Insurance Corporation…”
As of March 31, Voyager claimed to have $175 million in cash. At present, it’s not clear they have any cash. They said they had $355 million in cash “held for customers” as of June 30, per their press release. However, they haven’t spelled out liabilities, including “cash owed to customers.” What really matters to customers is the balance held at Metropolitan, and we don’t know what that is.
At this point, Voyager either needs to get another loan from FTX or declare bankruptcy.
If Voyager does need cash, they’ll have to sell their bitcoins and ether — driving down the prices of those.
The purpose of CeFi is to mis-sell investments
The CeFi lenders who are collapsing right now, such as Voyager and Celsius, are in the business of packaging up extreme risk as a shiny product — so that they can mis-sell these to the public as retail-suitable investments.
DeFi is a bunch of wires on a lab bench — not a finished product. CeFi puts a shiny box around the breadboarded system held together with clips and lumps of explosive.
The CeFi companies then lie to their customers that the remarkable interest rates on offer can exist without a jaw-dropping amount of hidden risk.
The very stupid and very crypto thing is when their fellow crypto institutions think “this is fine!” and do things like putting all their money into 3AC, which put all its money into Anchor.
It’s supposed to be retail — and not institutional traders — that sees a 5%, 10%, or 20% interest rate and stops thinking of anything but the big number. Perhaps crypto companies need to be legally restricted to retail-friendly investments? Or we could send some of these guys to jail for fraud, that works too.
18 thoughts on “Who had Voyager Digital next in the DeFi dead pool?”
Voyager reported that they have $330 million of customer cash held at present. You’re suggesting they have none and that it was all converted to usdc. Are you saying that they are lying in their June 30th release?
Actually, they claimed $175M in cash as of March 31. (I was rounding up.) In June 30, that $330 million included the USDC that 3AC owed them! They are counting loans as assets! A good guess is they currently have no cash left, because they have shut down withdrawals.
I think all the money’s gone. They hired Moelis & Company, and this is not a company you hire to shuffle some paper around before you resume normal operations.
You’re doing god’s work Amy
Well, thank you, Moe
I’m once again very, very glad that I never actually invested in anything crypto-related.
Amy. Should we all agree to stop using the term deposit and just say that the customers are lending money to the DeFi entities? At a minimum put the term “deposit” with some quote marks to highlight the misuse?
Good point! I’ll run it by DG
Hi Amy, See their statement here, https://finance.yahoo.com/news/voyager-digital-provides-market-184400883.html
They mention they have “cash held for customers” = $355m. This is specifically mentioned as “cash” i.e USD and not USDC / any other stablecoin or crypto asset. This is held for customers, presumably with their banking service provider in an FDIC insured account.
This is in addition to crypto assets held = $685m.
In a restructuring, of course it is yet to be seen whether those holding cash in voyager will be given any kind of preference vs those holding stablecoins/USDC. Holding cash on the platform does not earn any kind of interest. As per Voyager’s marketing, cash held in a user’s account is insured by FDIC though you have pointed out – whether the pass through insurance applies is doubtful.
If deemed necessary, please update your article. Thanks
You are correct. However, we doubt this is actual cash. Also, Voyager has not separately identified “cash owing to customers,” which could be a LOT more than cash held for customers.
What really matters for customers is the balance in the Metropolitan account. We have no way of knowing what it is.
As Voyager has stopped withdrawals, our guess is they have no more cash to hand out.
Jason, we did make an update to say: “As of March 31, Voyager claimed to have $175 million in cash. At present, it’s not clear they have any cash. They said they had $355 million in cash “held for customers” as of June 30, per their press release. However, they haven’t spelled out liabilities, including “cash owed to customers.” What really matters to customers is the balance held at Metropolitan, and we don’t know what that is.” Hope that clarifies.
Great post, thank you.
The very foundation of Voyager, the core of it’s business, the seed that made it grow and the fruit that attracted it’s entire customer base, the
cornerstone that the mods shouted from the roof tops was that CUSTOMERS’ USD FUNDS ARE FDIC INSURED!
It was a blatant lie .
Swapping USDC for USD was almost instantaneous and the complete absence of detail about when the funds became “insured” was a giant red flag.
The individuals at Voyager should be joining Mr Bernard Lawrence Madoff for touting such a lie.
Thank you Amy. This was incredibly insightful. I thankfully was able to see some of the writing on the wall so thankfully on Friday I was able to get the last large amount of money out of Voyager prior to them collapsing. I still have a small amount there but I know that’s gone. Your writing was simple, straightforward and precise. Couldn’t ask for anything more.
Thanks, Jeff! Glad you were able to get your money out.
Great article! Luckily I saw the writing on the wall for them many months ago when I dug into their financials myself. They were bleeding out for quite some time and their financials were quite pitiful; it was all right there for anyone to see. Their business plan was simply unsustainable. I pulled all my money & crypto out in December when I read through those numbers. This is a horrible situation to all involved. My only takeaway is that this hopefully encourages people to actually dig into a company’s books and assess their financials for themselves, instead of just assuming that being a publicly traded company on a stock exchange makes them legitimate.
What happens if voyager files for bankruptcy? Do people with USD deposits (not USDC) get any preference during liquidation? I would guess they are prioritized higher than the shareholders. I am just trying to see if we get anything back or is it all gone?
They filed for chapter 11 in SDNY on July 5. The bankruptcy court needs to approve any plan for restructuring.