FTX’s Fire Sale: DCI Sold to CoinList for Pennies on the Dollar to Repay Debts

In a dramatic turn of events for the beleaguered FTX estate, another asset is being offloaded in the relentless pursuit of funds to repay creditors. This time, it’s Digital Custody Inc. (DCI), a subsidiary FTX acquired for a hefty $10 million just last year. Now, in a move that underscores the depths of FTX’s financial woes, DCI is being sold to CoinList for a mere $500,000. That’s a staggering 95% discount! Let’s dive into what this fire sale means for FTX’s debtors and the wider crypto landscape.

Why is FTX Selling DCI at Such a Steep Discount?

The core reason behind this discounted sale is simple: debt repayment. Under the leadership of CEO John Ray III, tasked with navigating the FTX bankruptcy fallout, the mission is clear – generate liquidity, and fast. Facing immense pressure from regulators and creditors, the FTX estate is leaving no avenue unexplored to recover funds. This includes scrutinizing past deals and, as we see now, selling off assets, even at significantly reduced prices.

• Desperate Measures for Debtors: The sale of DCI highlights the urgent need for FTX to generate cash to reimburse its customers who lost funds when the exchange collapsed.
• Liquidation Strategy: This is part of a broader strategy of asset liquidation. FTX is essentially selling off pieces of its former empire to piece together funds for repayment.
• Market Conditions: The distressed sale also reflects the current market conditions and potentially a reduced valuation of DCI itself since its acquisition.

DCI’s Journey with FTX: From Acquisition to Fire Sale

FTX acquired Digital Custody Inc. between 2021 and 2022 with the intention of bolstering its custodial services for FTX.US and LedgerX. According to court filings, DCI was meant to be a key component of FTX’s US operations. However, fate had other plans. Before DCI could be fully integrated into the FTX ecosystem, the exchange imploded, and Sam Bankman-Fried (SBF) filed for bankruptcy in November 2022.

With the FTX revival now officially off the table and LedgerX already sold, DCI became an asset with limited utility for the bankrupt estate. FTX’s lawyers stated in the filing that DCI held “minimal value” in the current scenario, making its sale a logical, albeit heavily discounted, move.

See Also: FTT Plummeted 30% As FTX Relaunch Hopes Fade: What To Expect?

As FTX lawyers succinctly put it:

“DCI is also no longer useful to the Debtors’ business given the Debtors’ sale of LedgerX and that it is unlikely for the Debtors to sell or restart FTX US.”

CoinList and a Familiar Face: Terence Culver

Interestingly, the buyer, CoinList, is acquiring DCI with financing from Terence Culver, the former CEO of Digital Custody Inc. and the very person who sold DCI to FTX in the first place! This adds a layer of intrigue to the deal. It seems Culver sees value in DCI and is willing to back its acquisition by CoinList.

FTX reportedly received three offers for DCI, and the offer from CoinList, backed by Culver, was chosen primarily for its expediency in closing the deal. While relevant committees have given their nod to the sale, there’s still a small window for FTX to entertain better offers. However, if FTX backs out of the CoinList deal after this point, they’d face a $50,000 reverse termination fee.

FTX Revival Officially Cancelled: Full Focus on Reimbursement

After more than a year of exploring options to revive the exchange, FTX has officially abandoned all relaunch plans. The focus has now unequivocally shifted to reimbursing customers. Attorney Andy Dietderich explained that unsuccessful negotiations with potential bidders, primarily due to a lack of firm commitment for necessary capital, led to this decision.

Dietderich outlined that the current plan is to pay customers in full, calculating reimbursements based on cryptocurrency prices from November 2022, when the bankruptcy was filed. FTX debtors estimate that if the Bankruptcy Court approves their amended plan by the end of Q2 2024, customers could receive over 90% of the distributable value globally.

In other efforts to generate funds, FTX has also filed to sell its $1 billion stake in the AI startup Anthropic and has even proposed unconventional strategies like shorting Bitcoin with leverage. These actions underscore the relentless drive to maximize returns for creditors, even if it means taking calculated risks.

What Does This Mean for the Future?

While the $500,000 from the DCI sale is a drop in the bucket compared to the billions owed to FTX creditors, it’s another step in the long and complex process of financial recovery. For DCI, this acquisition by CoinList, with the backing of its former CEO, could represent a fresh start and a chance to realize its potential outside the shadow of FTX’s collapse.

For the crypto community, this saga serves as a stark reminder of the risks associated with centralized exchanges and the far-reaching consequences of mismanagement and fraud. The FTX saga continues to unfold, and the crypto world watches closely as the estate attempts to piece back together what was lost.

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