FTX Selling Digital Custody, Claiming it as Bankruptcy Move

FTX, now a bankrupt cryptocurrency exchange, is facing severe trouble as it lacks funds to return to its troubled users. The post-bankruptcy Chief Executive Officer of the exchange has ordered a Digital Custody(D.C.) sale to Coinist for $500k. 

The company bought the firm for $10 Million, but now it sells the subsidiary for $500,000. The court filing on February 09, 2024, with the bankruptcy court of Delaware aims to optimize the financial returns for the creditors and stakeholders within the framework of FTX’s ongoing bankruptcy process.

The concerned entity in question, Digital Custody Inc. (DCI), was bought for $10 Million. However, it is now on the sales block to Amalgamated Token Services Inc., operating as Coinlist for $500k. 

It is crucial to note that the amount to buy the firm was sourced from the original CEO and seller of Digital Custody Inc. 

The company’s attorney clarified that Digital Custody Inc. holds a nominal value following, as the FTX hasn’t started its service so that it might affect the debtors. However, the firm still holds a custodial license under the South Dakota Division of Banking.   

“DCI is 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 U.S.,” the exchange representative said.   

Journey of FTX

FTX came into existence in 2019. It was developed by Sam Bankman Fried (SBF), and later, he was joined by Nishad Singh and Gary Wang. 

The exchange soon caught the attention of major VC investors. SBF used this as a positive point and raised $8 Million in a seed round. The funding process continued, and the firm continued its path toward becoming 2nd biggest exchange. 

Flush with funding, FTX went on an aggressive expansion spree since 2021 using M&A and partnerships. 

This included acquisitions of crypto portfolio tracker Blockfolio for $150M in 2020, LedgerX derivatives exchange, and even complicated deals with embattled crypto projects like BlockFi. It helped supercharge user growth numbers through mergers & onboarding partners.

They also invested heavily in sports sponsorships and celebrity endorsements. Notable deals included securing the arena naming rights for the Miami Heat’s stadium, costing $135M over 19 years. 

They also signed star athletes like Steph Curry, Shohei Ohtani, and football star Tom Brady as brand ambassadors in expensive sponsorship deals. The glossy marketing push built tremendous brand recognition for FTX.

However, as FTX’s valuation and user numbers went through the roof in 2021 seemingly overnight, regulatory scrutiny started ratcheting significantly, especially in the U.S. 

Much of the initial criticism centered around the unusually close ties between FTX and SBF’s trading firm, Alameda Research, one of the giant trading counterparties on FTX. Critics highlighted risks around potential conflicts of interest given links between a trading firm and an exchange platform.

Steefan George is a crypto and blockchain enthusiast, with a remarkable grasp on market and technology. Having a graduate degree in computer science and an MBA in BFSI, he is an excellent technology writer at The Coin Republic. He is passionate about getting a billion of the human population onto Web3. His principle is to write like “explaining to a 6-year old”, so that a layman can learn the potential of, and get benefitted from this revolutionary technology.