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What’s Wrong with Centralized Crypto Lending?

Loeb Restructuring & Bankruptcy partner Daniel Besikof spoke to Blockworks in an article about the recent bankruptcies of several crypto lenders, including Voyager Digital, signaling for companies within the crypto lending industry to rethink their structures and practices and create better measures to protect customers.

In the case of Voyager Digital, the company’s bankruptcy has significant consequences for its customers, as “its user agreement didn’t actually guarantee the safeguarding of their funds.” According to Daniel, Voyager treated its account holders as unsecured creditors.
“The way that the [user] agreement contemplates how the assets will be held, and then how the company actually holds or uses those assets are the key data points for determining how those assets are likely to be treated in a bankruptcy,” he told Blockworks.
With the benefit of hindsight, Daniel said Voyager’s business model was difficult to justify for him. “They essentially loaned out the customer’s deposits to just a small handful of borrowers, the largest being [Three Arrows Capital], evidently with scant collateral coverage,” he said.
Daniel noted that most customers might not have grasped that they had signed on for higher risk than simply investing in cryptocurrency assets.
“I don’t think many of those customers realized that Voyager itself was perhaps an even bigger investment risk because the customer assets were being loaned out to people on which the customers had presumably done no underwriting,” he added.

To read the full article, please visit Blockworks’ website.