Voyager’s Impending Bankruptcy Crypto Sale to FTX: Explained

Voyager Digital’s deal to offload its crypto assets in a $1.4 billion bankruptcy sale to FTX US received initial approval from a New York court this week.

Other interested bidders may still bid higher for the assets. But the sale will be part of the crypto lender’s broad Chapter 11 liquidation plan that will need court approval in December.

The transaction is currently the leading offer that will migrate more than 1 million customer accounts to FTX. The $1.4 billion price tag largely reflects the estimated future value of Voyager customers’ cryptocurrency.

If Voyager’s liquidation plan is legally approved, secured and other priority claims will be paid in full. The bankruptcy estate can then go after debts it says were owed by defunct hedge fund Three Arrows Capital and others.

What will customers receive?

Voyager customers who held accounts on the platform and other general unsecured creditors will receive an estimated 72% recovery of their claims.

Account holders are expected to receive a mix of cryptocurrencies, US dollars or USDC – a cryptocurrency pegged to the value of the US dollar.

If the sale to FTX is completed, account holders’ payout currency will depend on whether they choose to migrate to FTX. Their currency recovery will also be based in part on when or if they migrate their account and which cryptocurrencies FTX’s platform supports.

Voyagers’ lawyer told a court this week that “the vast majority” of its more than 1 million account holders are expected to transfer to the FTX platform.

Account holders’ claims will also be settled based on the fair market value of the cryptocurrency they held in their Voyager account on July 5, according to Voyager’s court filings. That’s when Voyager declared bankruptcy.

That means if a Voyager account had 1 Ether worth $1,131.60 on July 5th, the claim is worth $1,131.60. That account holder will presumably get 72% of the $1,131.60.

Once a customer has determined their claim amount, they must work out their “initial allocation”, which will be a pro rata share of the claim. The first distribution will be largely financed by the FTX sales proceeds. Later payments may come from other sources.

To receive an initial distribution in primarily cryptocurrency, customers must register and maintain an account with FTX. Customers who do not sign up for an FTX account will, after a migration period, eventually be paid back in cash.

Under the proposed plan, the initial distribution customers receive on their FTX account depends on their claims and the 20-day historical average price of that cryptocurrency based on an undisclosed future date.

Voyager customers who have a type of cryptocurrency that FTX does not support will receive USDC. FTX’s platform plans to expand to support more cryptocurrencies in the coming months, according to Voyager disclosures.

What will happen to Voyager?

After the company’s bankruptcy plan is confirmed, Voyager will liquidate, according to the disclosures. The VGX token, Voyager’s digital currency, “will have no utility going forward,” according to company disclosures.

FTX has offered to buy all of Voyager’s VGX for $10 million, according to court records. But that offer for VGX was not part of the asset sale approved Wednesday.

Voyager has said it will still seek other higher offers for its VGX coins.

What happens afterwards?

Provided that the FTX Agreement is completed, FTX will only be responsible for making the initial distributions to the Migrating Customer.

All remaining proceeds from the sale will be returned to Voyager’s bankruptcy estate. The debtors will then make distributions to those who have not migrated to FTX, according to the Voyager disclosures.

As Voyager works to complete the FTX sale through the Chapter 11 plan, preparations will likely begin for the migration of customer accounts to FTX. Voyager will also begin collecting votes from creditors to approve the plan.

FTX also plans to offer customers who move over a $50 deposit to their accounts if they execute at least one trade on the platform.

Voyager is expected to go after the nearly $650 million in loans it made to defunct hedge fund Three Arrows Capital, which has also filed for bankruptcy protection. Any money Voyager collects from that will be used to pay off outstanding claims from account holders.