Twitter Facebook LinkedIn Flipboard 0 Metropolitan Bank, the financial institution at which customer deposits from bankrupted crypto exchange Voyager Digital are deposited, has confirmed that the deposits held by the bank are insured only if Metropolitan runs into trouble, not Voyager. This means that even though those deposits are safe, how they will be distributed to customers as part of Voyager’s restructuring process can only be determined by the court during the bankruptcy proceeding. The bank clarified the situation in a press release published earlier this month to address some apparent confusion in regards to how these assets will be treated as Voyager Digital made claims that USD deposits will somehow be protected in case the company failed. In a blog post published on Medium in 2019, Voyager stated that “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)”. “If a failure were to occur and deposits were lost, the FDIC responds by re-paying customers’ lost funds”, Voyager further commented. However, Voyager Digital is not an FDIC-insured financial institution. This means that its USD-denominated bank account with Metropolitan Bank is insured by the FDIC in case the bank collapses. According to the bank, it is Voyager’s responsibility to keep accurate records of how much of that money belongs to which customers, not the bank. Therefore, Voyager’s bankruptcy means that customers may lose a portion or the entire amount deposited with the broker, especially if the company is owed money that it will not be able to recover and/or if the court determines that creditors have a higher claim than customers in the distribution of all available assets. Voyager Claims that USD Deposits Will Be Accessible to Customers Soon In a press release published on 6 July, Voyager disclosed that it had $1.3 billion in crypto assets held by various custodians along with $350 million in USD deposits held at Metropolitan Bank in a For-Benefit-of-Customers (FBO) account. In addition, the company has $110 million that should help it pay its financial obligations during the reorganization. In regards to how Voyager plans to return money to its users, the company’s official statement said that “customers with crypto in their account(s) will receive in exchange a combination of the crypto in their account(s), proceeds from the 3AC recovery, common shares in the newly reorganized Company, and Voyager tokens”. Meanwhile, the company also said that “customers with USD deposits in their account(s) will receive access to those funds after a reconciliation and fraud prevention process is completed with Metropolitan Commercial Bank”. This, however, is a claim that the firm has made without getting approval from the bankruptcy court first and may or may not occur as stated depending on how the judge decides to treat these assets. Coinbase Recently Shed a Light on What May Happen if a Broker Goes Broke A recent addition to Coinbase’s risk factors in its quarterly earnings filing can shed some more light in regards to how customer assets under the custody of Voyager could be treated in a bankruptcy proceeding. In regards to this scenario, Coinbase disclosed that “because custodially held crypto assets may be considered to be the property of a bankruptcy estate, in the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings and such customers could be treated as our general unsecured creditors”. The disclosure continues as follows: “This may result in customers finding our custodial services more risky and less attractive and any failure to increase our customer base, discontinuation or reduction in use of our platform and products by existing customers as a result could adversely impact our business, operating results, and financial condition”. Since the regulatory framework for cryptocurrencies remains relatively murky in most latitudes, the Voyager bankruptcy may once again test the limits of existing legislation and this means that customers’ assets remain at risk if a court decides that these funds should be used to repay creditors. Other Related Articles: Are Crypto Exchanges Safe? How to Protect Yourself Best Crypto Exchanges in July 2022 Bullish Exchange Lets 10% of Staff Go DeFi Coin (DEFC) - Undervalued Project Our Rating Listed on Bitmart, Pancakeswap Native Token of New DEX - defiswap.io Up to 75% APY Staking Whitepaper and DeFi Tutorials - deficoins.io Learn More Twitter Tweet Facebook Share Email This article was written for Business 2 Community by Alejandro Arrieche.Learn how to publish your content on B2C Author: Alejandro Arrieche Alejandro is a financial analyst and freelance writer who's been following the markets and writing informative news content for more than seven years, covering all the latest developments in the crypto and stocks spaces. Other publications Alejandro has written for include The Modest Wallet, Buyshares, Capital.com, and LearnBonds. 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