Rekt By Voyager Digital: 10 Lessons Learned From Losing Everything
Have you ever been in a busy casino and noticed the sounds of slot machines chiming as players are heard screaming in excitement as they win what sounds like an endless stream of money? Did hearing and seeing others win make you or someone you were with feel inclined to put more money in a slot machine or on the table? Did winning something in a casino game make you want to gamble even more after that initial win?
By Marcus Henry
July 11th 2022
Gambling is as old as civilization itself, and has been refined over the ages to hack our impulses via the chase for the next dopamine hit that comes with gaining more. More money, more power, more excitement, more respect, more security, more status, more everything…
It is this primitive impulse that helped our hunter-gatherer ancestors seek out enough resources from the environment to ensure enough sustenance for the next generation to survive and thrive.
Perhaps one of humanity’s biggest flaws is an inability to know when enough is enough. Many are often just “biting off more than they can chew” because “their eyes are bigger than their stomachs.”
Thus, the credit system was born to enable people to have more now and to pay a fee in return later via interest. The creditor/debtor relationship is born.
Summary of Recent Events with Voyager Digital
Credit is where the problem lies when exploring the recent Voyager Digital Chapter 11 bankruptcy that has left all customers’ digital assets “temporarily” frozen, with what looks like a high likelihood of catastrophic loss of said assets for customers who believed in the vision of this once successful platform.
To stop the bleed as a result of customers pulling out/selling assets following recent market decline and general skepticism, Voyager Digital stopped all asset movement in and out of the exchange and filed for Chapter 11 in what Voyager CEO Stephen Ehrlich said is:
“to protect assets on the platform, maximize value for all stakeholders, especially customers, and emerge as a stronger company.“
In other words. “Sorry you can’t access ‘your’ assets anymore. We royalled messed up and need these assets to save Voyager from insolvency now so we can pay you back some of them in various forms later!”
I, for one, don’t like being paid in meatballs… Meatballs won’t pay for my dream house in Stamford, Connecticut!
Ehrlich shared details of this Chapter 11 restructuring process back on July 6th:
In short, Voyager gave Three Arrows Capital (3AC) a loan of more than $650 million dollars to which 3AC was unable to repay. Voyager Digital did not share if 3AC put up any collateral against its loan of customer assets; an industry best practice when working with debtors to mitigate losses in the event of a loan default like this.
Voyager is currently suing 3AC for the roughly $650 million dollars it is owed, which will likely take several years of litigation and is unlikely to result in full recovery of the lost funds for its customers. Other exchanges such as Celsius and Blockchain.com have also come forward with losses in the hundreds of millions as a result of 3AC as well.
Voyager’s current proposed business continuity plan, upon court approval, would resume account access and “return value” to customers.
Under this plan, which I have dubbed “Operation Meatballs,” customers with crypto in their accounts would receive a combination of the crypto in their accounts, proceeds from the 3AC recovery, common shares (stock) in the newly reorganized company, and Voyager tokens (VGX).
This plan gives customers an option to elect the proportion of stocks and crypto they will receive, which would be subject to certain maximum thresholds. This plan does not clarify just how much of customers’ original digital assets will be returned. Further, it does not go into the tax implications for customers as a result of this slide of hand operation.
This is Personal…
As a long-time Voyager customer and former advocate of the promising exchange, I am embarrassed, ashamed and deeply sorry for the family and friends I referred to Voyager over the years. After all, Voyager Digital is a public company, received licenses to operate in all 50 US states, the founders (including Stephen Ehrlich) came from reputable companies like ETRADE and Uber, they offered a VISA debit card, and even collaborated with the Dallas Mavericks!
Taking the Bait
Voyager really roped me in once they rolled out their very generous crypto interest program in 2021, which paid customers out monthly in crypto without any obligation to stake.
Much like the winner at the casino, I got a rush in seeing my Voyager crypto accounts go up month over month and compound along the way. It made me feel, for once in my life, like I was actually on the track to achieving financial freedom with Voyager and cryptocurrency.
I wanted more, and like so many other seeking an opportunity to take advantage of what seemed like a once in a lifetime opportunity, I put my savings on the line with the sense of reassurance Voyager provided me and so many other customers.
I take the blame for letting my greed get the best of me and foolishly putting my trust into a centralized entity like Voyager and not fully considering the risks. I hastily moved all of my crypto from other locations and consolidated them into my Voyager crypto wallets in what would turn out to be one of the biggest financial mistakes of my life.
Lessons Learned
Most of my takeaways from this financial disaster that has devastated millions of Voyager Digital customers is purely common sense, but worth mentioning…
1. Not Your Keys, Not Your Coins
I am currently looking in deep disappointment at “my” Voyager account. Where a button used to appear that said “trade” now says “transfers not supported.”
Centralized exchanges like Voyager do not want you to move crypto out of them. Make sure you have unhindered access to move your crypto at will.
Purchase a Ledger, a Trezor or other cold storage wallet (hardware wallet) and store your crypto and NFTs there.
I was a bit intimidated at first, but it is actually quite simple to set up and use a cold storage device like Ledger and Trezor.
These devices comes with extensive step-by-step guides to set everything up and transfer crypto to and from them. You don’t even need an internet connection to use one. Most importantly, with a cold storage device like a Ledger, or Trezor you own the keys, and you own your coins. Period.
2. Don’t Centralize Your Crypto In One Place
The key to protecting wealth may be diversification, but the key to protecting your tokens is also spreading them out.
Don’t create a single point of failure if something should happen again like what happened with Voyager. If you still want to keep your tokens on an exchange for some reason, ensure you are not keeping them on a single one.
As mentioned before, cold storage wallets like Ledger are king, but using multiple exchanges spread between centralized (CEX) and decentralized (DEX) will offset your risk in the event of an issue with a single exchange.
3. Be Weary of DeFi and CeFi
This one is simple. Read the fine print before you get involved with Decentralized Finance (DeFi) and Centralized Finance (CeFi). Assume that any crypto assets you put into any interest-bearing account that is out of your control can and will be used for risky activity that will yield a 50/50 chance of you ever seeing your tokens again.
4. You Can Stake Crypto Safely Using Cold Storage
You can safely stake tokens from your cold storage wallet without any risk of ever losing your tokens. Many tokens such as Ethereum, Tezos and Algorand can be staked safely while you keep the keys in your control.
5. If You’re Seeing High Monthly Interest, It’s Gambling
Just like hearing that constant jackpot noise at the slot machine, it is easy to get addicted to seeing that monthly interest hit your account. If you’re getting paid a high monthly interest from your exchange, there is a good chance that your exchange is playing the equivalent to high stakes poker with their debtors using your crypto assets.
Don’t get sucked into the APR game with your crypto. If it sounds too good to be true, that is because it probably is.
6. Don’t Be Greedy
If you’ve heard the expression “pigs get slaughtered,” it holds true for this one. If I had just been comfortable with what I had, I wouldn’t have put it all on the line for a marginal increase in my crypto bag.
Another expression here is “penny smart, pound foolish.” It wasn’t worth the extra few pennies in the grand scheme of thing now that I can’t access my crypto at all.
7. Don’t Leave in More Than You’re Willing to Lose
I’ve always known coming into crypto to never put in my entire savings. If you can afford to spread a little risk in the crypto game, don’t go all in using your rent or food money.
Once you’re vested in crypto and seeing some returns, don’t leave in more than you’re willing to lose. In other words, you might have a financial safety net outside of a specific crypto exchange or cryptocurrency entirely with regards to your finances, but don’t take on too much risk with any exchange or any cryptocurrency or blockchain-based technology.
8. Realize Some Gains
I am a HODLer till the very end, but greed has a way of keeping us all in on the upside. Given enough time, there will always be a downside or correction.
9. Trust No One
This is absolutely still like the Wild West. There remain very few regulations in this industry, hence, why I am out of a significant amount of crypto. There are very few people in this industry who know what they’re doing, and even fewer that can be trusted. This leads to my final point…
10. Do Your Own Research
Read a project’s whitepapers to understand what it does and how it does it. Read the terms and conditions for any service you’re going to use and make sure you understand the risks before putting your assets up with it. I wish I had seriously done so with Voyager and not been blinded by my monthly interest.
Many people will tell you the “facts” and what “the next bitcoin” will be. There are tens of thousands of crypto projects and each one has true believers that their token or platform is the next big thing. Don’t drink the kool-aid until you do the research.
Conclusion
Voyager Digital’s multi-millionaire CEO, Steve Ehrlich and Voyager’s legal and PR teams have issued vaguely worded/open ended statements to the public on how they will restore “value” to their customer’s accounts.
Bloomberg Columnist Matt Levine predict roughly 72% will actually be given back in some unsatisfactory (and likely tax-laden) form in an unknown period of time, pending outcomes from the suit against 3AC and Voyager’s restructuring. This will still equate to catastrophic losses for over a million hard-working, average, everyday people who trusted in Voyager to make their financial journey into crypto a success story and put their savings on the line.
Further, this will create a major trust issue in the crypto world that will result in a major setback for the crypto economy for years to come. This issue will likely lead to much-needed regulations on crypto lenders and exchanges moving forward on how they can and cannot do business with customers’ assets. I believe this is a good thing.
I still believe Stephen Ehrlich and Voyager Digital owe customers a detailed explanation on why they made a non-collateralized loan for $650 million dollars at the expense of their customers, what entities were informed ahead of freezing customer assets on the exchange, and how long they were aware of the problem.
I also sincerely believe this 3AC default came as a big surprise to Stephen and the Voyager Digital team, and there were otherwise good intentions from Voyager leading up to this dilemma, despite their deceitfully reassuring emails to customers that everything was fine just days before freezing customer assets and declaring bankruptcy.
To be fair, Voyager had otherwise demonstrated exceptional service and provided great offerings and even won Mark Cuban and the Dallas Mavericks over, which does say a lot about what the service was. Unfortunately, now that means nothing without customers having full access to all of their assets and their financial futures.
Will Voyager Digital make things right by their customers, or will we be left disappointed by whatever “value” is given to us in the coming months in what otherwise seems like a historically epic rug-pull?
Bankruptcy experts I’ve spoken with on the matter have prepared me for worst case scenarios wherein customers are paid pennies on the dollar AFTER whale investors and legal fees have been paid. Further, a class action lawsuit against Voyager Digital will be a likely next step for us customers, so look out for information on the matter in the coming months.
If Stephen Ehrlich or the Voyager team is reading this and wishes to do an AMA with me to clear the air and answer some of the web’s biggest questions on the Voyager Chapter 11 bankruptcy, I would be more than happy to do so.
For more information on Voyager’s current Chapter 11 bankruptcy and restructuring following the Three Arrows Capital loan default, go to their Node Blog, Press Release page, or Legal Claims Agent, Stresso.
Here’s to all Voyager customers impacted by this financial disaster and hoping that you are all able to keep your minds and hearts in a good place while this gets sorted out by the courts.
Crypto is not the problem here, centralization of power and greed is.