Founders of bankrupt Three Arrows Capital plan trading platform for distressed crypto debt
Startup’s pitch to investors estimates a $20B market for claims against fallen crypto companies
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The founders of a bankrupt crypto hedge-fund firm are seeking to launch an exchange where creditors to insolvent digital-assets firms, including their own, would be able to buy and sell claims.
Su Zhu, a co-founder of the bankrupt crypto hedge-fund manager Three Arrows Capital Ltd., said that he and others are seeking to raise $25 million in seed money for the new platform. A pitch deck to potential investors, seen by The Wall Street Journal, referred to the company as GTX, a poke at the fallen crypto exchange FTX.
Mr. Zhu said that GTX isn’t the final name of the company. The other founders include Kyle Davies, who co-founded Three Arrows, and Mark Lamb and Sudhu Arumugam, the co-founders of crypto exchange CoinFLEX. They are likely to finalize a name for the company next week.
Crytpocurrency prices were mixed early Monday morning. (Photo Illustration by Chesnot/Getty Images) (Photo Illustration by Chesnot/Getty Images / Getty Images)
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A wave of cryptocurrency companies filed for bankruptcy protection last year after the value of various coins fell and financial stress spread through the industry.
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Three Arrows defaulted last year on a roughly $2.4 billion loan from crypto lender Genesis Global Capital. The lender’s parent company, Digital Currency Group Inc., filed a claim of about $1.2 billion against Three Arrows. Last summer, a British Virgin Islands court ordered the liquidation of Messrs. Zhu and Davies’ company after creditors including DCG sued it for failing to repay debts.
Cryptocurrency exchanges are shelling out top dollar to run ads during next Sunday’s Super Bowl between the Los Angeles Rams and Cincinnati Bengals. (Photo illustration by Chesnot/Getty Images) (Photo illustration by Chesnot/Getty Images / Getty Images)
Mr. Zhu said some Three Arrows creditors would have the option to convert their claims into equity in the new claim-trading company.
Other crypto companies including lenders Celsius Network LLC and BlockFi Inc. and exchange FTX have also filed for bankruptcy. Investors are wary that more companies may become insolvent. Genesis is considering filing for bankruptcy, The Wall Street Journal reported.
An illustration picture taken in London on May 8, 2022, shows gold plated souvenir cryptocurrencies. (JUSTIN TALLIS/AFP via Getty Images / Getty Images)
Bankruptcy proceedings are often lengthy, sometimes requiring claimants to wait years before getting back some—if any—of their money. Creditors for the once-dominant crypto exchange Mt. Gox are still waiting to recover their funds, nearly a decade later.
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In its pitch deck, GTX estimated there is a $20 billion market for crypto claims, based on the notional value of those claims. GTX aims to get an edge over rival bankruptcy-claims trading startup Xclaim Inc. by offering lower fees.