Crypto exchange Digital Surge emerges as a rare survivor of FTX fallout

January 25, 2023 Coin Telegraph

The Australian crypto exchange lost access to $23.4 million of digital assets when FTX collapsed and FTX’s Australian subsidiary went into administration.

Australian cryptocurrency exchange Digital Surge appears to have narrowly avoided collapse, despite having millions of dollars in digital assets tied up in the now-bankrupt FTX crypto exchange.

On Jan. 24 local time, Digital Surge creditors approved a five-year bailout plan, which aims to eventually refund its 22,545 customers who had their digital assets frozen on the platform since Nov. 16, while allowing the exchange to continue operating.

The rescue plan was first floated to customers by the exchanges’ directors via email on Dec. 8, the same day the company fell into administration.

As per the “Deed of Company Arrangement,” the Australian crypto exchange will receive a 1.25 million Australian dollar ($884,543) loan from an associated business, Digico — allowing the exchange to continue trading and operating.

In a statement, administrators at KordaMentha stated that creditors would be paid over the next five years out of the exchange’s quarterly net profits.

“Customers will be repaid in cryptocurrency and fiat currency, depending on the asset composition of their individual claims,” KordaMentha said, according to a Jan. 24 report from Business News Australia.

Cointelegraph reached out to Digital Surge, which confirmed that creditors voted in favor of the rescue plan at their second meeting, on Jan. 24.

“We expect further communication will be provided to all customers as the administration process with KordaMentha progresses,” it added.

The Brisbane-based crypto exchange had been in operation since 2017 but became one of the casualties of FTX’s collapse in November, freezing withdrawals and deposits only days after FTX filed for bankruptcy and FTX Australia was placed into administration.

At the time, Digital Surge explained they had “some limited exposure to FTX” and would update customers in two weeks’ time — though that exposure was later revealed to be to the tune of around $23.4 million, according to KordaMentha.

The exchange has been one of the few crypto firms to form a solid plan to restart operations and avoid liquidation despite sizeable exposure to FTX.

Since November, several crypto firms, including crypto lending firms BlockFi and Genesis, have filed for Chapter 11 bankruptcy protection as a result of exposure to the fallout of FTX and market turmoil.

FTX CEO Sam Bankman-Fried Says Bailout Efforts Within Crypto Industry Have So Far Been a Let Down – Here’s Why

August 12, 2022 The Daily Hodl

SEC’s Hester Peirce opposes crypto bailouts — SBF didn’t get the memo

June 22, 2022 Coin Telegraph

Bailout

The commissioner made it clear she does not support bailouts for anyone in the crypto industry, arguing it's better to “let these things play out.”

Securities and Exchange Commission (SEC) commissioner Hester Peirce has spoken out against crypto company bailouts, arguing it’s actually better to “let these things play out,” to create a more sustainable industry.

Peirce, the most pro-crypto commissioner for the United States SEC, told Forbes that the recent crash in crypto, though painful, is separating strong companies from the weak.

“When things are a bit harder in the market, you discover who's actually building something that might last for the long, longer term and what is going to pass away,” she said.

The commissioner made it clear she did not support bailouts for anyone in the crypto industry, particularly those that mismanaged risk and became over-leveraged.

“Crypto does not have a bailout mechanism [...] I don't want to come in and say that we’re going to try to figure out a way to bail you out if we don't have the authority to do it. But even if we did, I would, I would not want to use that authority, we really need to let these things play out.”

The SEC commissioner’s comments come amid a slew of insolvencies, lay-offs, and hiring freezes within the crypto market.

Crypto whales to the rescue

FTX and Alameda Research founder Sam Bankman-Fried is taking a different approach and has been stepping in to rescue crypto companies struggling due to the market crash.

On Tuesday, Bankman-Fried informed his 706,900 Twitter followers that he and FTX will be injecting $250 million into BlockFi through a revolving credit facility to bolster its balance sheets and strengthen the platform.

6) We take our duty seriously to protect the digital asset ecosystem and its customers.
— SBF (@SBF_FTX) June 21, 2022

It came only days after Alameda Research agreed to give Voyager Digital a 200 million USDC loan and a “revolving line of credit” of 15,000 Bitcoins (BTC), worth $446.3 million at current prices, to be used “if needed to safeguard customer assets.”

Bankman-Fried told NPR on Sunday that this is something he and his companies have done “a number of times in the past” to “stem contagion” amid a cascade of falling crypto companies.

In an interview with Bloomberg on Wednesday, Anthony Scaramucci, founder of SkyBridge Capital called the FTX CEO the “new John Pierpont Morgan,” in reference to the Wall Street financial baron who pledged his own money and convinced others to do the same to shore up the banking system during the 1907 Bankers’ Panic.

“He is bailing out cryptocurrency markets the way the original J.P. Morgan did after the crisis of 1907.”

Peirce argues however that the downturn can be a valuable learning opportunity for market participants and regulators to see how the market moves in times of stress.

“It is helpful for us to see the points of connection. It's a moment, not only for market participants to learn, but it's also for regulators to learn so that we can have a better sense of how the market operates.”

The market turmoil has already badly affected lending platform Celsius Network and crypto-focused hedge fund Three Arrows Capital (3AC), which is facing insolvency after incurring roughly hundreds of millions in liquidations tied to the ongoing collapse of Ether’s price.

Bailout