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FTX to Offload Digital Custody in a Strategic Bankruptcy Sale

FTX's strategic divestiture amid bankruptcy

FTX, under the leadership of CEO John Ray III, has announced plans to divest Digital Custody for $500,000—a stark contrast to its initial purchase price of $10 million. This decision comes as part of FTX's broader bankruptcy strategy, aiming to streamline its asset portfolio in the wake of financial turmoil. The sale to CoinList, with financing from Digital Custody's original CEO, Terence Culver, signifies a significant markdown but is deemed necessary given the asset's diminished value to the FTX estate. 

FTX’s acquisition of Digital Custody was intended to bolster custodial services for its users through FTX US and LedgerX, yet the integration was halted by the bankruptcy filing of former CEO Sam Bankman-Fried, leaving Digital Custody potential unfulfilled.

The valuation and sale of digital custody

FTX's decision to sell Digital Custody at a significant loss highlights the challenges faced during bankruptcy proceedings. The legal team emphasized: 

"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.." 

Despite its initial high purchase price, the custodial license from the South Dakota Division of Banking remains Digital Custody's most valuable asset. After careful consideration of three offers, FTX opted for CoinList's proposal, favoring the speed of transaction completion and the existing relationship with Terence Culver to expedite regulatory approval.

In a statement shared by FTX Creditor Champion Sunil (@sunil_trades) on Twitter, the valuation reflects

"FTX file motion to sell Digital Custody for $500k which FTX bought for $10m to Terrence Culver (person who sold DCI to FTX for $10m)

A&M (UCC/Ad hoc agrees) says this reflects a fair price for the valuable license from South Dakota that allows it to provide custody”

This move is endorsed by both the committee and the ad hoc committee of non-U.S. customers, demonstrating a unified front in navigating FTX's complex bankruptcy landscape.

FTX's restructuring efforts and future outlook

Amidst the backdrop of bankruptcy, FTX's restructuring plans have come into sharper focus. The defunct cryptocurrency exchange has made it clear that reviving the firm is not on the agenda; instead, the priority lies in repaying customers fully. During a January 31 court hearing, FTX lawyer Andy Dietderich revealed: 

"despite extensive efforts, there is no plan to relaunch FTX," 

This stance was further reinforced by concerns from FTX users, who petitioned a U.S. bankruptcy judge to prevent the company from valuing their cryptocurrency deposits at 2022 prices—a method that would deny them the benefits of recent market recoveries. FTX's approach to its restructuring, emphasizing customer repayment and transparent asset liquidation, marks a significant chapter in the company's efforts to rectify the fallout from its collapse.