Crypto Fund Galois Ceases Operations After Losing Half Its Capital To FTX ⋆ ZyCrypto

Texas-based crypto-focused quantitative hedge fund Galois Capital has closed its business after losing a considerable portion of its assets in the spectacular implosion of the FTX crypto exchange. The fund will be returning its remaining assets to clients.

Galois Hit By FTX Contagion

The market turmoil created by FTX’s monumental meltdown is still spreading throughout the crypto industry.

According to a Monday report from the Financial Times, Galois Capital has suspended all trading, and the fund reversed its holdings as it can no longer stay afloat.

“Given the severity of the FTX situation, we do not think it is tenable to continue operating the fund both financially and culturally. Once again I’m terribly sorry about the current situation we find ourselves in,” said Galois co-founder Kevin Zhou in a letter to investors seen by the FT.

FTX was, until November 2022, the second-biggest crypto exchange by trading volume and managed to achieve a high degree of trust from seasoned investors and institutional customers relative to other platforms.

Things began turning sour for Sam Bankman-Fried’s FTX when leaked documents revealed that the exchange’s sister firm, Alameda Research, was collateralizing loans with illiquid tokens, including FTX’s own FTT token. Ultimately, a bank run followed, revealing that FTX was not backing user funds 1:1 behind the scenes — indicating the company could not honor withdrawal requests without billions in rescue funds.

Galois To Return 90% Of Available Funds To Customers

Galois Capital is only one of several crypto firms to face harrowing financial hardships due to direct exposure to the defunct FTX exchange, with approximately $50 million of its funds trapped on the exchange.

However, the crypto fund intends to return 90% of the available funds, which are not stuck on FTX, to its customers. The remaining 10% will be held by Galois for the time being until talks with the administrators and auditor are finalized.

Moreover, Galois’s Zhou said they sold the fund’s claims for roughly $0.16 on the dollar to avoid the prolonged process of being paid through a bankruptcy court, which could take a decade or even more.

“Although this is the end of an era for Galois, the work we have done together for the past few years has not been in vain.  I can’t say more than this for now.  Stay tuned,” Zhou said in a series of tweets Monday.

“Crypto will endure,” he opined, and “these setbacks are temporary and will come to pass. Stay strong and good luck.”