Some of Digital Surge's customers reported having entrusted the company with hundreds of thousands of dollars from their superannuation funds (retirement pension). "I lost everything," said one customer who had put his entire superannuation of more than AU$150,000 (~US$102,000) into his Digital Surge account, where it is now frozen.
Digital Surge enters administration
The Australian crypto broker Digital Surge entered voluntary administration several weeks after suspending withdrawals in the wake of the FTX collapse. In their announcement, executives proposed a "proposed rescue plan" that will be voted upon by customers, and which would involve cash infusions from the company's directors.
Orthogonal Trading is insolvent, defaults on $36 million in loans
The unsecured lending platform Maple Finance published a blog post announcing that they were severing ties with Orthogonal Trading, who had "misrepresented its financial position" for a month. "It is now clear that they have been operating while effectively insolvent, and it will not be possible for them to continue operating a trading business without outside investment," wrote Maple.
On December 3, Orthogonal Trading admitted to Maple that they were unable to meet loan repayments. The group was unable to repay a $10 million loan due the following day. The group has $36 million in liabilities across various loans on Maple's USDC and wETH pools.
Orthogonal Credit, a sister group to Orthogonal Trading, published a blog post distancing themselves, writing that they were "shocked and dismayed" by Trading's misrepresentation. "We are speechless by the extent of the exposure and liquidity position of Orthogonal Trading’s book of business," they wrote. They attributed the insolvency to FTX exposure.
- "Maple Severs All Ties With Orthogonal Trading", Maple
- "Maple Finance Severs Ties With Orthogonal Trading, Alleging It Misrepresented Financial Position", CoinDesk
- "Statement from the Orthogonal Credit Team — December 5th 2022", Orthogonal Credit Medium
- "Orthogonal Trading defaults on $36 million of loans on Maple Finance", The Block
Genesis owes $900 million to customers of Gemini Earn
After a domino effect in which Gemini suspended withdrawals from its "Earn" lending product due to Genesis suspending withdrawals due to FTX's collapse, it's been revealed by the FT that Genesis holds around $900 million in Gemini customer assets.
Gemini has formed a creditor committee to try to recoup funds from Genesis, as well as Genesis parent company DCG.
- "Crypto broker Genesis owes Winklevoss exchange’s customers $900mn", Financial Times
AAX customers search for executives
On November 13, the AAX cryptocurrency exchange suspended withdrawals, claiming they were dealing with a botched system upgrade. Shortly before, they had reassured their customers that they had stable reserves and no exposure to FTX.
On November 28, the company's vice president for global marketing and communications acknowledged that he had resigned from the company, explaining on Twitter that "I did fight for the community but none of the initiatives we came up with were accepted."
Upon realizing that the exchange was unlikely to resume withdrawals, some customers have taken it upon themselves to try to find AAX's executives. Some showed up at the Hong Kong headquarters, only to find it deserted. Another user appeared at their Singaporean coworking space, also to find it empty. Users have been posting leaked personal identity documents of listed executives on Telegram, hoping to locate them.
BlockFi files for bankruptcy
Crypto lending firm BlockFi has filed for Chapter 11 bankruptcy in the wake of the FTX collapse. The company was in dire straits in the spring after Terra and Three Arrows Capital blow-ups, but was bailed out in June by a $250 million loan from FTX, followed by a deal giving BlockFi a $400 million credit facility and giving FTX the "option to acquire" BlockFi.
Because of this dependency, it was no surprise when BlockFi announced they were once again in crisis following the FTX explosion. On November 15, the Wall Street Journal reported they were preparing for possible bankruptcy and considering layoffs.
On November 28, BlockFi filed for bankruptcy. Their filing estimates they have more than 100,000 creditors (the maximum option on the form), between $1–10 billion in assets, and between $1–10 billion in liabilities.
Hoo Exchange vanishes
On June 19, the Hong Kong-based crypto exchange Hoo announced that they would be pausing withdrawals for "24–72 hours" while they transferred some assets to top up their hot wallet.
Since then, there has been little communication and a series of shady activities. According to HOO CEO Rexy Wang on Twitter on July 15, Hoo employee and former Binance head of security Fang Wenbin (known as "Top") "took advantage of his position at Hoo to delete the company system privately, causing everyone in the company to be unable to access the system, resulting in a temporary failure of the main domain name". Top replied to allege that, "Rexy himself has transferred most of the assets from the platform. Employee salaries and platform users cannot withdraw coins".
At some point after that, Wang made his Twitter private. Hoo's social media channels have been inactive. On November 18, the exchange website was replaced with a post that identified the "Hoo de facto controller", Xu Tong Hua, and said: "Currently all permissions for Hoo's wallet and website programs are controlled by Mr Xu, so please contact the official email if you have any questions."
Meanwhile, customers have been active on social media complaining about the apparent fraud, and some have formed an informal group pushing for legal action against Hoo.
BlockFi plans layoffs, possible bankruptcy after FTX collapse
Cryptocurrency lending company BlockFi suspended withdrawals on November 10 after the FTX collapse, an expected move since they had stayed afloat after the previous crypto meltdown only thanks to hundreds of millions in loans from FTX.
Now, the Wall Street Journal reports that BlockFi has been considering layoffs, and has been in talks with bankruptcy attorneys about a possible Chapter 11 filing.
Although BlockFi disputed reports that they had been custodying client assets at FTX, they acknowledged that they had "significant exposure to FTX and associated corporate entities that encompasses obligations owed to us by Alameda, assets held at FTX.com, and undrawn amounts from our credit line with FTX.US".
- "BlockFi Prepares for Potential Bankruptcy as Crypto Contagion Spreads", The Wall Street Journal
SALT crypto lender halts their service
The crypto lending firm SALT announced that they would be halting withdrawals due to exposure to FTX. "I am sorry to report that the collapse of FTX has impacted our business," they wrote in a message to users. "Until we are able to determine the extent of this impact with specific details that we feel confident are factually accurate, we have paused deposits and withdrawals on the SALT platform effective immediately."
FTX files for bankruptcy, Sam Bankman-Fried resigns
Aaaand there it goes.
FTX announced that it had filed for Chapter 11 bankruptcy in the United States. Sam Bankman-Fried resigned as CEO.
SBF had spoken about trying to raise additional funds. In leaked Slack messages, he had allegedly written that "One could maybe say, if they wanted to be optimistic, that we have a lot theoretically in and/or potentially for the raise". No one was actually saying this.
Users attempt to circumvent FTX withdrawal freeze with bribes and NFTs
Users panicked when FTX stopped processing withdrawals, particularly those with substantial amounts of funds locked in the exchange. When the exchange tweeted that they had "begun to facilitate withdrawals of Bahamian funds", some saw an opportunity.
"Any FTX employees willing to change my accounts country of residence to Bahamas to facilitate withdrawal I am offering $1 million and unlimited legal fees", wrote one trader (who later claimed to be joking).
A popular crypto Twitter user named "Algod" offered $100,000 to any FTX employee who would process their KYC documents, allowing them to withdraw. He was subsequently seen to be successfully withdrawing over $2 million in assets from the platform. He also shared links to a Telegram group where his partner was offering to buy people's FTX accounts for 10¢ on the dollar, from customers who feared they may never see the money again, or would only regain access to a fraction of it after years of court proceedings. Algod later denied "erroneous and defamatory statements" that he'd bought discounted claims/assets", admitting that he'd considered it, but claiming he ultimately decided not to.
Some observers noticed over $21 million withdrawn via NFT trades, that appeared to be being used as a way to bypass the internal blocks on users transferring balances to one another. People with funds locked in FTX bought NFTs from Bahamas-based users, spending their full account balance on the NFT and thus enabling the Bahamian user to then withdraw the funds. "This appears to be the first recorded case of NFT utility in existence 👍", wrote Cobie.