You would be forgiven for thinking that, with Sam Bankman-Fried awaiting trial over the allegedly “epic” fraud at FTX, the collapse of a raft of crypto platforms and US regulators suing two major crypto firms for selling unregistered securities, the clowns of cryptoland might try to stay below the parapet for a while. But, sadly, you would be wrong.
This week the giggles and groans came courtesy of a new venture calling itself “GTX”, whose co-founders, Su Zhu and Kyle Davies, are none other than the co-founders of the bankrupt crypto hedge fund Three Arrows Capital. The fund collapsed last year, dragging many other crypto firms down with it. It is being investigated in the US over whether it broke rules by misleading investors about the health of its balance sheet.
But this new venture, which is seeking to raise $25mn “ASAP by end of February” according to its pitch deck, is not just any old crypto exchange. Zhu and Davies are partnering with the co-founders of CoinFLEX, an exchange that filed for debt restructuring last year as it sought to recover losses of $84mn. Their aim is to set up an exchange that allow customers to trade their crypto bankruptcy claims.
That’s right: these men — who, to be fair, can pretty safely be considered experts in bankruptcy — are offering you the chance to trade in your claim to get your money back from the likes of FTX and Celsius (another crypto platform that collapsed last year and whose founder is being sued for fraud). All you need do is hand over your claims to these people and in return they will give you their shiny new crypto money to play with, which will apparently be called “USDG”. Why are they calling the venture GTX you might ask? “Because G comes after F”, one of its pitch decks says.
After widespread mockery across the internet, CoinFLEX has now said this was just a “placeholder” name. But whatever the new exchange is called, what they are attempting to do here is clear: make money from the very failings that they have themselves been associated with, and which have caused financial ruin to so many.
Zhu even told the Wall Street Journal that some Three Arrows creditors — who are collectively owed an eye-popping $3.5bn by the firm — would “have the option to convert their claims into equity in the new claim-trading company”.
You have to admire the sheer brazenness of these people. But surely they can’t get away with this?
The lamentable thing is that, in the Wild West of crypto, they may just be able to. The market is showing signs of life, with bitcoin having clawed back some of its losses and trading up over a quarter so far this year. And they wouldn’t be the first founders of a collapsed crypto project to go on and set up another and even to make a lot of money from it. Do Kwon, the founder of the collapsed Terra/Luna “algorithmic stablecoin” project that at one point was worth more than $41bn, and who now faces legal action in several countries, had previously been the co-founder of a rather similar stablecoin named Basis Cash, which had itself collapsed in 2021.
“There are two sides to crypto — the shysters and the suckers,” finance and economics commentator Frances Coppola tells me. “The shysters, when they walk away from one failed venture, they’ll just set up another one . . . If you can do it all again, why not?”
In the non-crypto world, there are rules, norms and mores that would aim to prevent this kind of thing from happening. But cryptoland is not a regular place; it is a largely unregulated free-for-all of hype, grift and charlatanism, where value is sustained only by the idea that there will always be a greater fool than you around. In a world that rewards and thrives on shamelessness, why not behave as shamelessly as possible? And if you are already disgraced, why not disgrace yourself some more?
“In a sense it seems really absurd that [they] would try to monetise crypto bankruptcy, but it also makes sense in terms of the general trajectory of crypto,” Jacob Silverman, co-author of the upcoming book Easy Money, tells me. “There’s just no cost to anything and . . . there are very few accountability mechanisms.”
Whatever highfalutin things you might have been told, crypto is only really about one thing: making a quick buck. And from that perspective, what GTX is trying to do here is about as sensible and rational as the rest of the crypto world. The only problem, of course, is that it is also morally bankrupt.