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FTX Plans to Offload Digital Custody to CoinList at a 95% Loss

Introduction: FTX, the bankrupt crypto exchange, has filed legal papers proposing the sale of its subsidiary, Digital Custody, to CoinList for a mere $500,000. This divestiture marks a stark contrast to the initial $10 million investment made by FTX to acquire Digital Custody back in 2021, resulting in a significant 95% markdown.

Background: Digital Custody was intended to be a key asset for providing custodial services to FTX’s U.S. operations, including FTX US and LedgerX. However, it never fully integrated with FTX’s operations before the bankruptcy filing by former CEO Sam Bankman-Fried in November 2022. With FTX US still inactive and LedgerX sold off, the decision to divest Digital Custody at a substantial discount was prompted by its perceived redundancy.

Sale Process: The proposed sale to CoinList is facilitated by a pre-existing favorable relationship with Digital Custody’s original CEO, Terence Culver. FTX’s legal team believes this relationship will help navigate regulatory pathways smoothly. To expedite the sale, a provision for a reverse termination fee of $50,000 has been included, demonstrating a commitment to swift closure.

FTX’s Asset Liquidation: This divestiture comes shortly after FTX began exploring strategic options for its 8% interest in AI firm Anthropic Holdings. CEO John J. Ray III is evaluating auction or private sale options to divest this asset. Additionally, FTX is preparing to liquidate its $175 million claim against insolvent crypto lender Genesis Global Capital, which is currently trading at a premium discount in the market.

Creditor Concerns: FTX’s legal counsel, Andrew Dietderich, expressed confidence in the financial resources available to satisfy all verified customer and creditor claims. However, concerns arise regarding the fairness of settlements, particularly concerning cryptocurrency assets that were undervalued during the platform’s collapse but have since appreciated significantly. Despite discontent among customers, Dietderich maintains that the claims estimation methodology aligns with bankruptcy protocol, a stance validated by Judge John Dorsey’s ruling.

Conclusion: FTX’s decision to divest Digital Custody at a substantial loss reflects its efforts to streamline operations amidst bankruptcy proceedings. As the exchange continues its asset liquidation process, concerns persist regarding the fair settlement of creditor claims, highlighting the complexities inherent in bankruptcy proceedings within the cryptocurrency space.

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