Voyager Token: When Bad Crypto Does Good Things
Sometimes the crypto world does something that pushes the boundaries of logic. And we’re seeing just such a case with the rapid rise in value of the Voyager token (VGX). This is the incentivization token of the now bankrupt Voyager exchange. And at last check it was up a head-scratching 268% over the past day. Here are several reasons this makes no sense…
At some point when the markets weren’t in the midst of a crypto winter, a prominent crypto hedge fund took out a $670 million loan with Voyager. At the time, Three Arrows Capital was still wildly bullish on crypto. Last year, one of the founders of Three Arrows said that Bitcoin could be worth as much as $2.5 million per coin. If that did come to be true, the aforementioned loan wouldn’t have been a big deal. But we can now see that this was objectively a bad idea.
Voyager Digital since issued a notice, stating that the fund failed to repay a loan of $350 million in stablecoin USDC and 15,250 Bitcoin. At the time, all those Bitcoins were worth about $323 million. Three Arrows defaulted on the loan. And the founders (at least temporarily) disappeared. That is until Su Zhu showed up on Twitter to accuse bankruptcy administrators of entrapment.
Sadly, our good faith to cooperate with the Liquidators was met with baiting. Hope that they did exercise good faith wrt the StarkWare token warrants. pic.twitter.com/CF73xI8r6n
— Zhu Su 🔺 (@zhusu) July 12, 2022
All of this was bad news for the Voyager crypto exchange. And it should also have been bad news for the Voyager token. And for a while, it was. Until it inexplicably wasn’t.
Voyager Token Should Be in the Dog House
Voyager Digital Ltd. filed for bankruptcy earlier this month. The hundreds of millions in customers’ crypto it lent to Three Arrows did it in. And it filed for Chapter 11 in New York. Meanwhile, it doesn’t have enough money to pay back all of its customers. But as part of a restructuring plan, it does have some tokens to pay back customers.
Here’s what the lawyers had to say on the matter:
The proposed Plan of Reorganization (“Plan”) would, upon implementation, resume account access and return value to customers. Under this Plan, which is subject to change given ongoing discussions with other parties, and requires Court approval, customers with crypto in their account(s) will receive in exchange a combination of the crypto in their account(s), proceeds from the 3AC recovery, common shares in the newly reorganized Company, and Voyager tokens. The plan contemplates an opportunity for customers to elect the proportion of common equity and crypto they will receive, subject to certain maximum thresholds.
Crunching the numbers on what this means for Voyager customers, they should receive an estimated 72 cents for every dollar they had in their accounts. And for the trouble, customers will also receive shares of Voyager stock, Voyager tokens and some shares of Voyager’s claims against Three Arrows. So on top of those losses, customers that once earned a tidy yield from staking their Voyager tokens will soon be owners of Voyager.
All of this is a great example of exactly how decentralized finance is not supposed to work. Though to be fair, Voyager did operate under the auspices of being a centralized exchange. Which is how it was able to pay yield out to its customers for using its service. This is very much how a bank uses your money… Except far less recklessly.
The Bottom Line on Voyager
It’s tough to say whether some Voyager token enthusiasts are:
- Looking for a bargain anywhere they can find it
- Overly forgiving
Some folks out there might consider anyone that invests in crypto all of the above… Well, at least right now when prices are way down. But here’s the thing, the normal supply and demand that dictates crypto prices should normalize this process. However, the skyrocketing value of the Voyager token means that folks are acting very bizarrely.
If a typical bank was caught with its pants down from lending too much capital, would you invest in it? If a company that manufacturers widgets declared bankruptcy for selling them too cheaply, would you be willing to give it more money? Because that’s what happened to the Voyager exchange. It was paying out too much yield for staked Voyager tokens. And it lent our way too much money to a troubled hedge fund.
And in the process of all this, its customers got the short end of the stick… But hey, at least they’ll be partial owners of the bankrupt firm now. In the meantime, anyone that’s buying more Voyager tokens should ask themselves if they know why they’re doing what they’re doing. If it’s just on the hope to make a quick buck, good luck to you. But if it’s to help the Voyager exchange return to its former glory, we think there are plenty of better cryptos to buy right now.
About Matthew Makowski
Matthew Makowski is a senior research analyst and writer at Investment U. He has been studying and writing about the markets for 20 years. Equally comfortable identifying value stocks as he is discounts in the crypto markets, Matthew began mining Bitcoin in 2011 and has since honed his focus on the cryptocurrency markets as a whole. He is a graduate of Rutgers University and lives in Colorado with his dogs Dorito and Pretzel.