Crypto Investors Can Purchase Bankruptcy ‘Put Options’ To Protect Funds On Binance, Coinbase, Kraken

Investment firm Cherokee Acquisition is offering the options, which will allow account holders to recover 100% of their assets in the event the major exchanges file for bankruptcy and lock customer assets. Crypto Investors Can Purchase Bankruptcy ‘Put Options’ To Protect Funds On Binance, Coinbase, Kraken

Bankruptcy-focused investment firm Cherokee Acquisitions has started offering what it calls “put options” to crypto investors to protect their funds on crypto exchanges Binance, Coinbase and Kraken in the event of a bankruptcy,

The put options will protect account holders’ deposits on the listed exchanges, paying back 100% of the assets in the account if the exchange files for bankruptcy protection within the contract period.

Large institutional investors and hedge funds will sell the options and compensate investors in the event of bankruptcy filings, Brian Ferrara, sourcing and trading specialist at Cherokee, told CoinDesk.

The monthly fees of the options are 0.25% to 0.35% for funds on Coinbase, 0.35% to 0.45% for Kraken and 0.45% to 0.55% for Binance Holdings Ltd, the firm said in an email to investors reviewed by CoinDesk.

Cherokee Acquisition is a distressed asset investment banking firm that also has a marketplace for credit claims against bankrupt firms. The firm has been actively structuring deals and buying customer claims for their crypto holdings against embattled crypto firms such as Celsius Network, Voyager Digital and FTX.

The new offering comes as multiple digital asset firms have filed for bankruptcy protection over the past year, freezing withdrawals and locking up investors’ holdings. After November’s spectacular collapse of FTX, the exchange of disgraced entrepreneur Sam Bankman-Fried, crypto traders became wary about the stability of centralized exchanges and the security of their digital assets. As fear grew, they withdrew funds in waves.

The pricing of the options is an estimate based on the firm’s proprietary formula considering a six-month contract, and should be interpreted “as a starting point” between the buyer and seller, according to Cherokee.

This means a Binance account holder with a balance of $1 million who wants protection may buy a put option with a six-month expiry for an estimated price of $27,000-$33,000 paid upfront given the monthly rates. If the firm files for bankruptcy within the contract term, the seller would be obligated to buy the account holder’s valid bankruptcy claim at the full $1 million price.

Updated: 1-17-2023

Chutzpah

My basic view is that the crypto financial system was built by a bunch of young people who left traditional finance because they really love building new toy financial systems and crypto offers them a fun sandbox in which to do it.

If you went to those people and said “hey, can you design a system for trading claims on bankrupt crypto firms?” they would be like “sure that sounds really fun.” And a lot of them have a lot of time on their hands right now, what with their crypto firms having gone bankrupt. So, so, so:

* 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.

Incredible. Also:

* Mr. Zhu said some Three Arrows creditors would have the option to convert their claims into equity in the new claim-trading company.

I just! Absolutely magnificent stuff. “We were too good at taking your money, sorry about that, but to make up for our losses we’ll let you bet on our ability to take your money again.”

The biggest problem 4 with the crypto financial system is that it is relatively bad at trading real stuff: Crypto exchanges are for trading crypto tokens, and without underlying cash flows or real-world businesses those have a distressing tendency to go to zero and bankrupt everybody.

But if you build a crypto exchange whose central product is all the money people lost on the last crypto exchange, you are solving that problem.

The net amount of money made in crypto fluctuates wildly, but the total supply of (1) money made in crypto plus (2) money lost in crypto can only really go up. If you build an exchange to let people trade their crypto losses, you will have a durable business.

Updated: 2-2-2023

Distressed Crypto Deals Heat Up As Jefferies Buys Genesis Claim

* Claims On The Lender Are Trading At Up To 35% Of Value: Broker
* Genesis Parent Digital Currency Group May Help Recovery

Crypto Investors Can Purchase Bankruptcy 'Put Options' To Protect Funds On Binance, Coinbase, Kraken

Just months after FTX’s collapse drew some of the largest distressed investors to crypto, the spiraling industry has thrown up a new high-profile target: Genesis.

While the lender only filed for bankruptcy less than two weeks ago, the broker XClaim has confirmed three trades for its claims with an average value of over $1 million, in the range of 25% to 35% of face value, according to Chief Strategy Officer Andrew Glantz. A $4 million claim was sold to Jefferies Leveraged Credit Products LLC, according to a Tuesday filing.

Genesis, a unit of Barry Silbert’s Digital Currency Group, became the latest domino to fall in the crypto downturn after the failures of firms such as Three Arrows Capital and FTX fueled a liquidity crunch. For distressed investors, it’s yet another chance to scoop up crypto claims at sharp discounts in hopes of profiting from any eventual recovery.

Unlike the prior crypto cases, Genesis filed for bankruptcy with a restructuring plan. It also holds claims including a loan of about $575 million and a $1.1 billion promissory note against DCG, which could potentially contribute to recovery.

“There’s sort of an unusual feature here where you have DCG group, which is both a large creditor of Genesis and the parent shareholder,” Glantz said.

Distressed investors began wading into crypto claims in earnest when FTX went under in November with at least $10 billion in liabilities, drawing the interest of large funds including Baupost Group and Oaktree Capital Management, Bloomberg News reported earlier.

To creditors with assets stranded at these bankrupt firms, selling their claims is a way to raise much-needed cash to keep operating or deploy back into the market.

Genesis has said it hopes to implement its restructuring plan no later than May 19, though that still requires approval from a judge and other creditors. The firm also hired a former federal prosecutor to investigate the transactions with DCG entities, raising the prospect of collecting some money from the parent company, which also owns Grayscale Investments.

“It’s not going to be a quick in and out of bankruptcy, but hopefully it’ll be quicker than FTX and Celsius,” said Bradley Max, a director of the claims broker Cherokee Acquisition.

In the case of FTX, the price on claims has risen somewhat to as much as 18% on accounts with over $1 million, compared to up to 13% in December, Cherokee’s data show. This was partly due to FTX’s recent announcement it had found $5 billion of cash or tokens it could sell to repay creditors, Max added.

Even before then, Galois Capital, a well-known crypto fund run by Kevin Zhou, sold its roughly $50 million claim at around 16%, according to a person familiar with the matter who declined to be identified as the transaction was private. Zhou confirmed he’s sold his claim while declining to comment on pricing.

The valuation of FTX’s assets also pose a uniquely crypto complication. With such volatile prices, it is hard to work out how much those tokens will be worth in dollar terms after liquidation, making their book value especially unreliable.

Already in the new year, a Bloomberg index of the largest cryptocurrencies has jumped about 46%. Even tokens closely tied to FTX’s disgraced co-founder Sam Bankman-Fried, such as Solana, FTT and Serum, have more than doubled. They still remain far from recouping losses spurred by the exchange’s demise.

“The company’s overall assets may go up or down based on crypto prices and therefore there may be more dollars to distribute,” said Glantz at XClaim.

Even then, there is a caveat. “If the company were to actually liquidate them today, it would just flood the market with that token and cause the price to crash,” he added. “So what is the actual liquidation value of that?”

Updated: 2-20-2023

FTX Bankruptcy Claims Sell for 20 Cents on the Dollar in Private OTC Markets

The sales suggest distressed asset funds are projecting recoveries of about $0.50 over five years.

Distressed asset funds can pick up FTX bankruptcy claims for up to 20 cents on the dollar in private over-the-counter (OTC) markets, a person familiar with the matter told CoinDesk.

FTX filed for bankruptcy in November after its sister company Alameda Research was blown out of levered long positions during the market downswing. Sam Bankman Fried’s defunct exchange now owes its 50 largest creditors $3.1 billion.

There are public bankruptcy markets, and they’ve valuing distressed FTX assets at around $0.16 on the dollar, with individual claims of up to $27 million being sold on bankruptcy marketplace XClaim.

The private OTC markets are showing similar pricing, with distressed asset funds buying in the range of 15 to 20 cents on the dollar, an anonymous FTX creditor told CoinDesk.

“They are buying on the projection that they will only get money in five years,” the source said. If the funds end up getting 25% in five years, it won’t be a great trade as that’s only about a 5% annual return. “I think a lot of these firms are projecting around 50 cents on the dollar recovery,” the creditor suggested.

The source added that the deals are mostly private as not all claims are fungible, and the “quality” of the claim is also considered in the sale value.

“As the FTX website is currently down, it is very hard for people to prove the assets people had on the exchange,” the source concluded. “There may also be a clawback period for those who tried to withdraw leading up to the bankruptcy, so the quality of claims is important.”

Updated: 3-19-2023

Goldman Readies Claims Trading For Wiped Out Credit Suisse Debt

* Swiss Regulator Said Bank’s AT1s Would See Complete Writedown

* Goldman Is Gauging Price Levels For Claims On The Debt

Goldman Sachs Group Inc. traders were preparing to take bids on claims against Credit Suisse Group AG’s riskiest bonds after the takeover of the Swiss lender wiped out about 16 billion Swiss francs ($17.3 billion) of the debt.

Clients were told in a message late Sunday that the New York-based bank would soon start trading claims in the so-called additional tier 1 bonds, or AT1s, according to people with knowledge of the matter. A representative for Goldman declined to comment.

Investors looking to buy such claims would be making a bet that they can ultimately recover some value, potentially through litigation.

The Swiss financial regulator known as Finma said on Sunday that Credit Suisse’s takeover by UBS Group AG would trigger a “complete write-down” of the AT1 debt, a type of security introduced after the global financial crisis that’s designed to take losses if a bank’s capital ratios drop below a certain level.

Despite that embedded risk, Finma’s move provoked a furious response from holders of the debt because shareholders — who sit lower in the pecking order in the bank’s capital structure — are set to receive 3 billion francs in the UBS deal.

No prices had been circulated as of Sunday night for claims on Credit Suisse AT1s, although clients were told that they would likely be in the single digits, said the people, who asked not to be identified because the communications were private.

In a rare weekend trading session, the value of Credit Suisse’s AT1 debt whipsawed ahead of the UBS deal announcement, oscillating between 20 cents on the dollar to as high as 70 cents as the deal was finalized.

Credit Suisse’s AT1 bonds denominated in Swiss francs were indicated at 2 cents in early trading on Monday, according to data compiled by Bloomberg.

AT1 bonds were introduced in Europe after the global financial crisis to serve as shock absorbers when banks start to fail.

They are designed to impose permanent losses on bondholders or be converted into equity if a bank’s capital ratios fall below a predetermined level, effectively propping up its balance sheet and allowing it to stay in business.

Updated: 4-4-2023

Crypto Exchange Backed By 3AC Founders Launches With Claims Trading Plans

OPNX CEO Leslie Lamb said the exchange planned to launch claims trading aimed at helping users from bankrupt crypto platforms including FTX and Celsius.

Su Zhu and Kyle Davies, founders of the collapsed hedge fund Three Arrows Capital (3AC), have announced the launch of the crypto project Open Exchange, or OPNX.

Both Zhu and Davies retweeted the April 4 launch announcement from OPNX chief executive officer Leslie Lamb, who said the exchange was open to “trade spot and futures immediately.” According to the CEO, the launch of the exchange was aimed at wanting to “help the industry” amid the collapse of platforms including FTX and Celsius.

“Claims trading will be the next thing that we launch, so that these claimants can have an opportunity to be made whole again,” said Lamb.

We are thrilled to announce that https://t.co/Q2HsUqSZ7E is now live! Sign up to trade spot and futures immediately. Claims trading coming very soon

A message from our CEO Leslie: pic.twitter.com/VVVX00AzHf

— OPNX (@OPNX_Official) April 4, 2023

The exchange, a brainchild of the 3AC co-founders as well as higher-ups from crypto investment platform Coinflex — currently subject to a restructuring plan approved in Seychelles — launched its website in February. Three Arrows Capital, the crypto-friendly hedge fund that once held $10 billion worth of assets, went bust amid the 2022 market crash.

Following the collapse of 3AC, Coinflex CEO Mark Lamb and co-founder Sudhu Arumugam later said they would be working with Zhu and Davies to build a new platform, reportedly originally pitched as “GTX” before the team settled on OPNX.

Authorities in the United States have also issued a subpoena to Davies via Twitter regarding his alleged role in 3AC’s collapse.

At the time of publication, both Davies’ and Zhu’s whereabouts were unknown. However, both 3AC co-founders have continued to be active on social media channels.

Updated: 4-5-2023

Bankruptcy Claims Exchange OPNX Stumbles Out Of The Gate

Less than two dollars worth of trades have been executed in the 24 hours after the exchange went live.

OPNX, which is short for Open Exchange, a bankruptcy claims exchange co-founded by failed crypto hedge fund Three Arrows Capital co-founders Kyle Davies and Su Zhu, has posted minimal trading volume since it went live on Tuesday.

Across all spot and derivatives markets on the exchange, just two trades have been executed worth a total of $1.26 at press time.

OPNX CEO Leslie Lamb told CoinDesk that the lack of liquidity is because there are no internal market makers for the exchange and its not giving preference to external market makers. Lamb added that a public marketing program will be rolled out to spur liquidity.

It remains unclear whether the exchange has suffered issues with enlisting new customers or whether the issue is a lack of demand.

The exchange was co-founded by Davies and Zhu, alongside executives of troubled exchange CoinFLEX.

Zhu said in a tweet on Tuesday that liquidity will be built “brick by brick” and that the exchange was learning from the failure of crypto exchange FTX by avoiding having internal market makers.

It’s worth noting that the tokenized bankruptcy claim feature, which will let users cash in a range of crypto-related claims, isn’t live yet.

The FLEX token, which is OPNX’s native token, was down 28% over the past 24 hours to $2.01, giving back all its gains it made during a rally earlier this week.

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