The FTX debtors’ estate, under the leadership of CEO John Ray III, has initiated a move to offload Digital Custody to CoinList, marking a significant drop in its sale price to $500,000, a fraction of its initial $10 million acquisition cost. This decision comes with a twist as the financing for this markdown deal is set to come from Terence Culver, Digital Custody’s original CEO and seller. The backdrop of this transaction is FTX’s initial purchase of Digital Custody, aimed at bolstering custodial services for FTX US and LedgerX, which however did not materialize as planned.
The acquisition of Digital Custody by FTX, executed in two separate transactions each worth $5 million in December 2021 and August 2022, was envisioned to enhance the FTX ecosystem. Nevertheless, the integration of Digital Custody into FTX’s operations was halted by the unforeseen bankruptcy filing by FTX’s former CEO, Sam Bankman-Fried, in November 2022, just three months post the latter acquisition. With FTX US’s operations remaining dormant and the subsequent sale of LedgerX, the legal team of FTX has articulated that Digital Custody no longer holds relevance to the debtors’ ongoing business strategies.
Intriguingly, despite its diminished value to FTX, Digital Custody retains a custodial license from the South Dakota Division of Banking, adding a layer of regulatory approval to its assets. After a thorough evaluation of three potential offers, including one from Culver himself, the debtors opted for CoinList’s proposal, highlighting the speed of transaction completion and the existing relationship with Culver as key factors expected to expedite regulatory consent.
The approval for this transaction has been secured from both the committee and the ad hoc committee of non-U.S. FTX.com customers, signaling a collective nod to the sale. However, the agreement stipulates a window for FTX to entertain a superior offer for Digital Custody until three days prior to the sale’s conclusion, ensuring a safeguard against potential loss. Should the deal fall through, a reverse termination fee of $50,000 will be levied.
This development is part of a broader narrative where FTX, now defunct, clarifies its restructuring trajectory, focusing squarely on customer reimbursements rather than a revival of operations. This stance was reinforced during a January 31 court hearing, underscoring the absence of plans for an FTX relaunch amidst ongoing legal and financial restructuring efforts.