Is there any industry institution that can throw an olive branch at this moment, save it from the fire and water; or will another small wave become the last straw that crushes the camel?
Author: Mia, ChainCatcher
Another large-scale encrypted custody is on the verge of bankruptcy-Prime Trust was favored by well-known encrypted companies such as Binance.US, FTX, and Celsius, providing asset storage and bank-like services, but now it is in a dilemma of “insolvency” or It may be taken over by regulatory agencies.
Today, DB NEWSWIRE revealed in a post on its social media that the Financial Institution Department (FID) of Nevada, USA, stated that Prime Trust had lost access to the old wallet as early as 2021 and misappropriated customer assets to repurchase cryptocurrencies. Prime Trust owes customers US$85.67 million in fiat currency and US$69.509 million in digital currency, but currently only holds US$2.904 million in fiat currency and US$68.648 million in cryptocurrencies.
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The news caused a sensation. As one of the giants of encrypted custody, Prime Trust has been privately misappropriating customer funds since 2021. It is worth noting that Prime Trust has had business dealings with FTX, Celsius, and others, which is alarming.
On June 23, FID issued a cease-and-desist order to Prime Trust, ordering Prime Trust to stop all activities that violate Nevada state regulations, claiming that the company’s “overall financial situation has deteriorated severely” and that its operations have incurred huge deficits and may even be insolvent.
Currently, FID has requested the appointment of a receiver to take over the company’s daily operations and thoroughly inspect all its financial conditions, in order to determine the best choice for Prime customers, either to rectify and return the company to private management, or to liquidate it.
In response to the previous cease-and-desist order, TrueUSD, one of Prime Trust’s custodial clients, immediately responded: its stablecoin TUSD funds are still safe, TrueUSD does not have a risk exposure to Prime Trust, and is not affected by this situation, and all user funds are safe. Earlier on June 10, TrueUSD issued a statement announcing that it had temporarily suspended casting through Prime Trust.
Additionally, earlier this month, cryptocurrency custody company BitGo had reached a preliminary agreement to acquire Prime Trust, a cryptocurrency custody company. This undoubtedly brought a glimmer of hope to struggling Prime Trust. However, just 12 days after the announcement, BitGo suddenly announced that the acquisition was terminated, undoubtedly cutting off the last hope for Prime Trust’s survival.
Today, Coinbase product manager Conor Grogan also revealed on social media that according to Arkham data, the Prime Trust wallet holds a total of $69.71 million in digital assets, of which the holding of AUDIO is $61.51 million, accounting for 88% of its digital currency assets. As we all know, AUDIO is one of the FTX series tokens, which previously peaked at a coin price of $4.4, but has now fallen to $0.18, a drop of 24 times, which may be inseparable from Prime Trust’s imminent collapse.
All of these events, big and small, have quietly taken place in June, and everything seems to be accelerating the collapse of this cryptocurrency “building”.
So, why has the once glorious Prime Trust fallen into such a situation? Is it the butterfly effect after FTX’s bankruptcy, or poor internal management? What will be the last straw that breaks the camel’s back? And where will the stablecoin TUSD, which it was responsible for custody of, go?
The Rise and Fall of Prime Trust
Prime Trust was founded in 2016 and is headquartered in Las Vegas, Nevada. At first, it was not a company that provided cryptocurrency services. It initially focused on trust agency and held funds for early-stage enterprise financing. Prime Trust began to turn to cryptocurrency in 2018 and agreed to hold the US dollar reserves for TrueUSD, a stablecoin issuer. Prime Trust promotes innovation in the digital economy by providing financial infrastructure to fintech and digital asset innovators. Its main business covers the provision of token and fiat currency custody, fund processing, anti-money laundering, know-your-customer compliance, and trading technology services.
Prime Trust’s founder and former CEO Scott Purcell resigned in early 2021. Since then, Prime Trust has been taken over by Tom Blockinggeler and was fired at the end of last year, and Jor Law served as interim CEO. The flow of CEOs seems to imply that there have been some problems with Prime Trust’s internal operations.
In fact, with the strong rebound of Bitcoin in 2021, Prime Trust’s cryptocurrency business has also flourished. Prime Trust revealed at its year-end press conference in 2021 that it added hundreds of new accounts during the year and the total assets under custody nearly doubled.
According to RootData, Prime Trust raised a total of $63.98 million in Series A financing in July 2021, led by Traverse, a growth stock fund of Mercato Blockingrtners, and participated by Samsung Next, Kraken Ventures, and Seven Peaks Ventures. In June of the following year, Prime Trust announced the completion of a $107 million Series B financing. The two rounds of financing raised more than $170 million. Such a large amount of money began to “fall into debt” after less than a year, which reflects to some extent that its operation may have serious problems. Prime Trust founder Scott Purcel revealed in an interview that after he left the company, internal management began to become chaotic. Although he received a lot of money from investors, the effect was minimal.
As the rebound of cryptocurrencies subsided, Celsius Network and FTX, both of which were Prime Trust customers, applied for bankruptcy in the second half of 2022. Celsius sued Prime Trust from August 2022, trying to recover more than $17 million worth of cryptocurrencies held by the latter. Celsius stated that when the two parties terminated the agreement in June 2021, although Prime Trust had returned $119 million worth of cryptocurrency assets to Celsius, it still refused to fulfill its obligation to transfer 398 BTC, 196,268 CEL tokens, 3,740 ETH, and 2.2 million USDC. At the subsequent bankruptcy hearing, Prime Trust agreed to return the assets.
A bigger blow followed. With the collapse of the FTX cryptocurrency empire, Prime Trust was also caught in its scandal vortex. It is reported that FTX US once held US dollar reserves in custody by Prime Trust, and there were also personal financial transactions between Prime Trust and FTX executives. It was revealed that FTX founder SBF used Prime Trust to donate to a political action committee he supported, and the source of Prime Trust’s $500,000 donation to the state Democratic Party was traced back to former FTX executive Nishad Singh.
The successive bankruptcies of major customers have left Prime Trust in a dilemma. To reduce operating costs, Prime Trust chose to lay off one-third of its staff at the beginning of this year and also stopped all business in Texas.
As a custodian, Prime Trust was supposed to be a relatively safe part of the financial system and did not engage in high-risk activities. As an intermediary, Prime Trust helps digital asset companies place cash in the banking network and is an important partner for digital asset companies that cannot directly enter the banking system. Therefore, when Silvergate and Signature Bank collapsed, Binance.US also chose to hold client funds through Prime Trust in April this year, entrusting its client funds to Prime Trust for custody.
However, earlier this month, the SEC sued Binance.US and sought to freeze assets related to Binance.US holding and operating companies BAM Management US Holdings and BAM Trading Services. Prime Trust lost another important customer.
On the 14th of this month, banq, a subsidiary of Prime Trust, filed for bankruptcy protection in a Nevada bankruptcy court. According to the bankruptcy application, the company has about $17.72 million in assets and $4.5 million in liabilities. At the same time, Abra, a crypto lending company that is a Prime Trust client, has also been accused of “securities fraud” by the Texas Securities Commission, which says it has been bankrupt or near bankruptcy for months.
Subsequently, FID officially took action against Prime Trust on the 23rd of this month. Possibly influenced by this stop order, BitGo, a cryptocurrency custody company, also announced that it was withdrawing from the provisional agreement to acquire Prime Trust.
After being abandoned by regulatory agency responsibilities and potential acquirers, Prime Trust, which was once flourishing, has gradually come to the brink of bankruptcy. At present, the company has stopped all cash and cryptocurrency deposits and withdrawals, and is facing the risk of bankruptcy liquidation. In addition, cryptocurrency companies that place assets in Prime Trust also face uncertain risks and future situations.
Prime Trust’s sudden closure has caused a chain reaction
Prime Trust’s sudden closure has also caused ripples among its client base. If Prime Trust really cannot escape the fate of bankruptcy, then the cryptocurrency companies related to it will also not be spared.
Securitize, a blockchain company that saves investor cash deposits for Prime Trust’s trading platform, said that some functions are currently suspended and will transition to a new custodian as soon as possible, and will ensure the safety of customers; the Estonian cryptocurrency exchange Coinmetro also stated on its official social platform that it is currently unable to process new dollar transactions due to the suspension of deposits and withdrawals by Prime Trust.
Furthermore, Swan Bitcoin, a financial advisor platform service company, previously listed Prime Trust as a custodian and listed all tokens from the TradeFi financial advisor platform as being held in Prime Trust. Currently, Swan Bitcoin has revealed that it intends to terminate the agreement. Although Prime Trust has not disclosed the specific amount of assets under custody, according to official data, Prime Trust’s custodial service clients cover a wide range of financial and tech industries, including but not limited to digital asset exchanges Bitstamp, Bittrex Global, OKCoin, Zilliqa, etc.; securities issuance platforms Securitize, Harbor, SeriesOne, etc.; real estate investment platforms RealBlocks, Elevated Returns, etc. If Prime Trust fails to fulfill its custodial responsibilities, customers’ assets may be lost or frozen. Additionally, if Prime Trust goes bankrupt, its customers may not be able to continue using its custodial services.
Furthermore, if Prime Trust goes bankrupt, its customers may receive protection from FDIC insurance, which is overseen by the Federal Deposit Insurance Corporation (FDIC) and the Nevada Financial Service Bureau. The maximum insurance amount is $250,000 per customer.
Will TUSD (TrueUSD) be affected?
After Prime Trust suspended deposits and withdrawals, TrueUSD informed customers with associated accounts via email that they will be unable to mint or redeem the stablecoin TUSD during Prime Trust’s operating suspension. Since Binance began heavily promoting it on its platform, TrueUSD has gone from an unknown stablecoin project to being in the mainstream view, with its market share growing rapidly. According to Coinmarketcap data, as of the time of writing, the total issuance of TUSD is close to $3.14 billion.
Reportedly, TrueUSD is a stablecoin issued by TrustToken on the Ethereum and Binance Smart Chain. Holders can mint the same amount of TUSD by depositing USD, and they can also exchange TUSD for USD at any time. The deposited USD is stored in different bank accounts and is supervised and audited by third-party institutions. Initially, the US dollar reserves behind TrueUSD were held in custody by Prime Trust. However, TrustToken has now established partnerships with other custodians to reduce the risk of TUSD due to a single custodian’s bankruptcy.
Previously, TrueUSD encountered FUD because of its suspension of TUSD minting with partner Prime Trust, resulting in a brief decoupling. TrueUSD immediately responded on social media that “TUSD’s minting and redemption services are not affected and will continue to operate as usual,” and the TUSD price subsequently returned to normal.
In recent days, amidst a series of fluctuations such as Prime Trust ceasing to be acquired by BitGo, being reviewed by regulatory agencies in Nevada and stopping deposits and withdrawals, TUSD seems to be unaffected. TrueUSD has once again clarified that it will maintain multiple channels for minting and redeeming dollars.
Today, according to the reserve report, TUSD holds $26,434 in funds in a US deposit institution that has been ordered to stop withdrawals, of which $26,269 is related to customer withdrawals and token exchanges, but there is no specific description of which US institutions the funds are held in. We can boldly speculate that the institution is most likely Prime Trust, and the amount of funds deposited is negligible compared to the total issuance of TUSD of $3.13 billion.
The size of the exposure is still unclear. Although TUSD previously stated that it has “no exposure” to Prime Trust, if Prime Trust applies for bankruptcy protection, the most likely impact would be on the restricted issuance of TUSD; secondly, the process of exchanging TUSD for US dollars or other currencies may be restricted or delayed, causing inconvenience to TUSD holders; in addition, if the issuance of TUSD is restricted or the process of exchange is delayed, it may increase the market’s uncertainty about TUSD, leading to price fluctuations.
Although Prime Trust is stepping towards the abyss step by step, it has not had an impact on the development of TUSD. Instead, in the week before Bitcoin broke through the $30,000 mark, the supply of TUSD increased from slightly over $2 billion on June 14 to $3.13 billion on June 21, an increase of 56.5%.
Summary
After experiencing the bankruptcy year of FTX in 2022 and the collapse of Silvergate and Signature Bank and the SEC lawsuits against Binance and Coinbase in the cryptocurrency industry this year, major cryptocurrency companies are like startled birds quietly enhancing their risk resistance and preparing for “black swan events” at all times.
Prime Trust is currently still on the brink of bankruptcy. At present, the official has not commented on this, but its credibility in the cryptocurrency industry has clearly dropped to the “freezing point”. Is there still an industry institution that can throw an olive branch at this moment and save it from the fire and water; or will another small storm become the last straw that crushes the camel?
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