FTX to divest Digital Custody to CoinList at major loss

Bankrupt crypto exchange FTX has filed legal papers proposing the sale of its subsidiary, Digital Custody, to CoinList for $500,000.

The price tag is in stark contrast to the initial $10 million FTX spent to buy Digital Custody back in 2021 — a 95% markdown.

The crypto exchange intended Digital Custody to be a key asset in providing custodial services to its U.S. operations, FTX US and LedgerX.

However, Digital Custody never fully synced with FTX’s operations before the bankruptcy filing by former CEO Sam Bankman-Fried in November 2022.

With FTX US still moribund and LedgerX sold off, the legal team argued in its filing that Digital Custody’s role is effectively redundant, spurring the decision to divest at a deep discount.

The proposed sale to CoinList is expedited by a favorable existing relationship with Digital Custody’s original CEO, Terence Culver, something FTX’s lawyers believe will help smooth regulatory pathways. 

To reflect the urgency of their circumstances, the team has even incorporated a provision for a reverse termination fee of $50,000, demonstrating a commitment to a swift and decisive closure of the sale.

FTX asset liquidation gathers pace

This move comes barely a week after FTX started exploring strategic options for its 8% interest in the AI firm Anthropic Holdings. CEO John J. Ray III is assessing the feasibility of holding an auction or proceeding with a private sale to divest this asset.

Anthropic Holdings, noted for specializing in advanced language models akin to GPT-3 and recognized as a Delaware public benefit corporation, received a staggering valuation of $18 billion in the last fiscal quarter of 2023. This valuation positioned FTX’s stake at an estimated $1.4 billion.

Furthermore, the embattled exchange is setting the stage to liquidate its $175 million claim against the insolvent crypto lender Genesis Global Capital—a claim currently circulating at a premium discount in the market.

Questions arise about fair settlement for FTX creditors

Amid these liquidation maneuvers, FTX’s legal counsel Andrew Dietderich expressed confidence to a bankruptcy court that sufficient financial resources are in place to satisfy all verified customer and creditor claims fully.

However, the nuances of these settlements remain to be fully disclosed, with the volatile nature of bankruptcy claims in secondary trading contributing to the complexity.

There’s reportedly an ambivalence among many FTX customers, who contest the methods used to appraise their claims, especially regarding cryptocurrency assets that were “dollarized” at low market values during the platform’s collapse but have since rallied significantly.

Acknowledging the discontent, Dietderich maintained that the conversion to dollar terms was consistent with bankruptcy protocol — a stance validated by Judge John Dorsey’s ruling on the fairness of the claims estimation methodology.