Voyager Digital Faces FDIC Probe Into Marketing for Deposit Accounts

The Federal Deposit Insurance Corporation is looking into Voyager Digital marketing of deposit accounts for cryptocurrency purchases, an FDIC official said, confirming a report in the Wall Street Journal.

Customers who assumed their deposits were insured by the FDIC learned otherwise after Voyager filed for bankruptcy and a banking regulator began an inquiry, the report said. The FDIC official did not comment on details of the probe.

The battered crypto brokerage and lender filed for bankruptcy last week, becoming the latest casualty of a drastic fall in cryptocurrency prices.

Voyager declined to comment on the probe.

Crypto lenders boomed during the pandemic, but have recently run into difficulties following the downfall of a major token in May and global risk-off sentiment.

Voyager said last week it had more than $110 million (roughly Rs. 900 crore) of cash and owned crypto assets on hand. It intends to pay employees in the usual manner and continue their primary benefits and certain customer programs without disruption.

The firm did not have access to customer funds for its own purposes and the money, protected from creditors, is also segregated from its assets in bankruptcy, the WSJ report said.

Many of the crypto industry’s recent problems can be traced back to the spectacular collapse of so-called stablecoin TerraUSD in May, which saw the stablecoin lose almost all its value, along with its paired token.

Back in May, the crypto market was rocked by the collapse of the stablecoin TerraUSD, an outlier because its peg to the dollar was supposed to be maintained by a complex algorithmically driven mechanism rather than by reserves of dollars or other assets, as is typical for stablecoins.

Stablecoins are pegged to the value of mainstream assets such as the dollar to boost confidence, and are the main medium for moving funds between cryptocurrencies or into regular cash.

TerraUSD’s woes had contributed to a slide in crypto markets that saw over $357 billion (roughly Rs. 28,29,200 crore) or 21.7 percent of digital asset market capitalisation wiped out week-on-week, according to research from crypto exchange Kraken.

© Thomson Reuters 2022