Voyager Digital Bankruptcy Hints at Crypto’s Shaky Foundations 

The implosion of crypto lender Voyager Digital — which filed for bankruptcy protection on Wednesday (July 6) — begs the question as to when, or even whether, cryptocurrency truly will have a place within commerce.

And whether stablecoins are the most logical alternative.

As reported here, the firm, with  3.5 million active customers, faced what was termed a “short-term run on the bank” after a borrower defaulted on a $650 million loan.

Though the company focused on crypto brokerage service, enabling its customers to buy and sell more than 100 cryptocurrencies, Voyager also had a lending arm, which, as has been reported, offered crypto holders double-digit percentage point interest paid on their crypto deposits. Those deposits were in turn lent out to other borrowers.

We described some of the mechanics of the run itself, which had much to do with levels of collateralization and investor worries about the same.

We posit that thinking this is simply about retail investors and about trading platforms might be a bit short-sighted.

Because at the root of it all — at the heart of crypto trading and lending — is a continuum of banking, or banking-like, activities, where the platforms take in deposits and lend out money (or cryptos) against those deposits. Stablecoins are in the mix, too, as Voyager had listed in its asset disclosures that it had access to about $200 million in cash and USDC stablecoins.

Stablecoins might be thought of, broadly, as a “bridge” between traditional fiat and cryptos, as they enable traders to buy and sell those cryptos without traditional financial intermediaries.

Companies like Voyager (and a range of other companies) might be an on-ramp toward using cryptos in a more generalized, commerce-focused setting. Think of it this way: the same investors/speculators who hang on to bitcoin and its brethren are the ones who would ostensibly spend their gains at merchants, buying goods and services with their winnings.

Ready for Prime Time? 

Indeed, PYMNTS research, done in collaboration with BitPay, shows that 85% of merchants say the ability to gain new customers is a reason for their interest in accepting crypto at the checkout.

Read also: 85% of Merchants See Crypto as Path to Gain New Customers

But with the volatility that is now universal in crypto land with swings seen in platform economics, and withdrawals and redemptions “frozen” time and again … panic is a regular feature here. And panic is never a good thing when trying to establish new ecosystems of commerce. To quote an old boxing aphorism, everyone has a plan until they get punched in the nose.

Without any of the backstops of traditional finance, even the stablecoins have been known to break the buck, so there are no real “acid tests” that can give holders true assurance that what they’ve got in their digital wallets will be there tomorrow. Regulation is still relatively nascent, but is surely on the horizon.

How it all evolves — at least for bitcoin and altcoins as they strive to be fully in the mainstream — is anybody’s guess. But Voyager proves that getting there will be a bit … messy.