Cryptocurrency broker and lender Voyager Digital filed for bankruptcy protection on Tuesday

Voyager reported having $6 billion in assets and $258 million in shareholder equity, a ratio of about 23:1 as of March 31. That compares with a median assets-to-equity ratio of 9:1 for all North American banks in the S&P 1500 Composite index, according to data from FactSet. The firm’s downfall illustrates the chain reaction across the sector following large declines in many digital currencies. Voyager said its problems stem above all from the more than $650 million it lent hedge fund Three Arrows Capital Ltd.— a debt Voyager recently said Three Arrows was unable to repay.

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Cryptocurrency broker and lender Voyager Digital Ltd. VOYG 0.00%▲ filed for chapter 11 bankruptcy protection late Tuesday, becoming the latest victim of a contagion rippling through the crypto world.

Voyager, which is listed in Toronto and operates a U.S. cryptocurrency platform, said in a court filing that it faced a “run on the bank,” as it was flooded with withdrawal requests by customers while some of its own investments soured or froze.

Voyager’s chief executive officer, Stephen Ehrlich, said in the filing that the firm has “a viable business and a plan for the future.” It hopes to restructure, returning customers some of their investments while also giving them ownership in the reorganized company, Voyager said in court filings.

The chapter 11 filing comes just weeks after Voyager assured customers of its own stability—a trait that has been a common feature of wobbly crypto firms that went on to suspend withdrawals.

logo credit – Voyager Digital / seeklogo

The firm’s downfall illustrates the chain reaction across the sector following large declines in many digital currencies. Voyager said its problems stem above all from the more than $650 million it lent hedge fund Three Arrows Capital Ltd.— a debt Voyager recently said Three Arrows was unable to repay.

Last week, a court in the British Virgin Islands ordered the hedge fund to liquidate after it suffered heavy losses from the collapse of Luna and other cryptocurrencies since May.

To customers, Voyager marketed its offerings as safe, particularly for U.S. dollar deposits. “In the rare event your USD funds are compromised due to the company or our banking partner’s failure, you are guaranteed a full reimbursement (up to $250,000),” Voyager wrote in a 2019 post.

Voyager’s main banking partner, New York-based Metropolitan Commercial Bank, also sought to reassure customers of the crypto broker that they would be protected.

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The bank said on its website that an omnibus account containing funds of Voyager customers was insured by the Federal Deposit Insurance Corp., and that standard deposit insurance covers up to $250,000 per depositor.

Voyager’s latest statement said customers would receive access to their cash “after a reconciliation and fraud prevention process” with the bank.

Until recently, Voyager benefited from a model that mushroomed in the crypto sector in the past two years. The company was flooded with deposits after offering customers interest rates as high as 9% on stablecoins (Why regulators are worried about stablecoins) tied to the dollar—an offering mirrored by many competitors.

Voyager reported having $6 billion in assets and $258 million in shareholder equity, a ratio of about 23:1 as of March 31. That compares with a median assets-to-equity ratio of 9:1 for all North American banks in the S&P 1500 Composite index, according to data from FactSet.