Irony: An exchange for bankrupt crypto exchanges – to trade your lost coin claims

In an episode of the comedy South Parka powerful player who has seemingly devoted his entire life to World of Warcraft causing chaos in the game. Concerned software developers, unable to stop him, complain: “How do you kill what has no life?”

Likewise, in the cryptocurrency world, after repeated meltdowns, sometimes caused by the same idiots who never learn their lesson, I wonder, “How do you humiliate that which has no shame?”

You may remember Three Arrows Capital (3AC), the Singapore-based crypto hedge fund that lost USD 1 trillion last year. It was one of the dominoes that fell in the sweeping crypto crash that halved bitcoin to a low of US$20,000 last June.

Part of the duo behind 3AC, Su Zhu, is now trying to stage a comeback, with a plan that is irony-on-irony: a crypto exchange for failed crypto exchanges, where investors who are not sure of getting their money back through the bankruptcy process can sell their claims for pennies on the dollar.

To be sure, though, I commend Mr. Zhu’s ingenuity because there seems to be a business case for this kind of exchange.

Imagine for a moment that you use the Japanese exchange Mt. Gox, deposit $1,000 and then buy bitcoin. Unfortunately, the platform goes down in 2014, taking your $1000 worth of crypto before you have a chance to withdraw it. You become a creditor in Mt. Gox’s bankruptcy process.

Almost 10 years later, today, you finally see the finish line. But there are so many other creditors who could be in line ahead of you, and there can’t possibly be enough money in Mt. Gox to cover everything it owes (which is why it went bankrupt).

What if you could have gotten some of your money back immediately—guaranteed—instead of the vague hope of some other fraction of years to come?

Well, you can sell your claim to Mt. Gox coins to someone willing to take that risk and wait. That’s exactly what was on the mind of a New York private equity firm, Argo Partners, which had been going around trying to buy people’s Mt. Gox claims for 10 cents on the dollar.

The same company had also gone around trying to buy the claims that users needed to hold money on QuadrigaCX, after the Vancouver-based exchange’s founder, Gerald Cotten, was reported dead in 2019 and the platform collapsed.

This is the basic principle behind Mr. Zhu’s upcoming operation, OPNX. There is nothing wrong with letting people sell bad debts. Banks and businesses sell off bad loans to debt collectors for pennies on the dollar all the time.

But consider the irony for a moment.

The first layer of irony is that Mr. Zhu’s OPNX appears to be letting people trade their claims from his collapsed 3AC. It is an implicit acknowledgment by Zhu that he had failed investors so much that, rather than wait to see if they get their money back from 3AC, they are better off letting someone else take that risk – and Zhu would do that. more money on them by taking a cut from every trade on OPNX, like how all exchanges work.

The second layer of irony is the sheer number of collapsed crypto firms listed on OPNX’s website, with 10 in total.

There are now so many collapsed crypto operations, and so many creditors with such bleak hope of getting their money back, that someone behind a collapsed crypto operation believes there is a demand for a platform that gives creditors a chance to recover something like 10 cents on dollars. The very existence of OPNX is a recognition of the sad state of crypto these days.

And while this sad state has created the legitimate need for such a platform, the question arises whether Mr. Zhu is the best person to run it.

Let’s put aside the optics of irony. Let’s put aside even the recent accusations by liquidators in a New York court that Zhu showed “no compliance whatsoever” with the 3AC bankruptcy process and instead had “shamelessly” promoted OPNX. Let’s just focus on the simple reason why, in the first place, this man is here before us, before the courts and before the public, despised in the eyes of gods and men: Mr. Zhu has already lost 1 trillion USD on 3AC . Who’s to say he won’t lose another trillion on OPNX?