Crypto Lenders Keep Pausing Withdrawals Citing FTX Exposure

An investment firm run by bitcoin backer Simon Dixon has canceled plans to acquire embattled crypto lender SALT, which has suspended withdrawals over exposure to FTX.

Dixon’s investment unit BnkToTheFuture said Tuesday it tore up its non-binding letter of intent over SALT’s positions kept on FTX, now defunct following a dramatic week involving allegations of misuse of customer funds and other corporate malfeasance.

BnkToTheFuture added that SALT (Secured Automated Lending Technology) had failed its due diligence investigation.

Also on Tuesday, Shawn Owen, SALT’s CEO, said the platform would pause withdrawals and deposits effective immediately due to its exposure to FTX.

SALT, which signed the letter with BnkToTheFuture in September, allows users to take out crypto-backed loans: “Once you pay back your loan, we’ll return your assets to you,” its site reads.

“I am sorry to report that the collapse of FTX has impacted our business. Until we are able to determine the extent of this impact with specific details that we feel confident are factually accurate, we have paused deposits and withdrawals on the SALT platform immediately,” Owen wrote.

SALT’s native token of the same name quickly dropped more than 20% after the notice was sent out. It now trades at under $0.0328, down 70% year to date and 99.9% below its all-time high of $17.22 set in December 2017.

Customer loans will remain active and monitored, Owen said, as SALT attempts to navigate a path forward with its partners. The platform will honor on-chain deposits in the meantime but Owen strongly urged users not to send any more funds to their accounts.

“We hope that you understand that we are committed to protecting our customers above all else and are working around the clock to do everything possible towards this as our top priority.”

SALT ran afoul of the US Securities and Exchange Commission in September 2020 over its 2017 initial coin offering, which the regulator deemed an unregistered securities sale. The startup was subsequently ordered to pay $250,000 in a civil penalty and to return the $47 million it raised to investors.

Not just crypto lenders, Liquid also suspends withdrawals

Dixon’s BnkToTheFuture said it has not been impacted by either SALT or FTX. The firm, which helps accredited investors back fintech and crypto projects, has no connection with both platforms and that all client funds are “fully segregated and uninvested,” per a blog post.

BnkToTheFuture has however had its fair share of struggles this year. It was the lead investor in failed crypto lender Celsius back in 2020 and held 5% of the firm at the time of its bankruptcy in July, with 1,039 of BnkToTheFuture users exposed.

Dixon himself was one of Celsius’ top depositors as it went bankrupt, although he’s said that money kept on the platform represented “a small percentage of his wealth.” Dixon, BnkToTheFuture and SALT did not immediately respond to requests for comment.

SALT had no doubt hoped the BnkToTheFuture deal would amount to a favorable buyout, given the platform’s rocky history and widespread troubles for crypto lenders.

Rival platform and former tech unicorn BlockFi also suspended withdrawals last week and is now reportedly on the brink of bankruptcy. Prominent competitors Celsius, Voyager and Hodlnaut all went bust earlier this year following the demise of algorithmic stablecoin ecosystem Terra.

Lenders aside, US-based hedge fund Ikigai has been left bloodied after discovering it was unable to withdraw most of its client funds from FTX.

FTX-owned Japanese exchange Liquid Global has also been hit. Liquid, founded in 2014 and one of the oldest crypto platforms in Japan, paused withdrawals on Tuesday for both fiat and crypto as part of FTX’s chapter 11 bankruptcy.

Liquid was acquired by FTX in February as part of expansion efforts into the typically stringent jurisdiction.

David Canellis contributed reporting.

H/T: Tiffany Fong

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