Another Week, Another Crypto Company Going Under
There is no real good reason why Prime Trust should be going under. That is, unless there was gross incompetency…
Now, we have another one in trouble…
Prime Trust, a Nevada-based crypto custodian that has provided bank-like services to major companies like BinanceUS, FTX, Celsius, Swan, and Abra, is being placed into receivership by Nevada.
The Financial Institutions Division (FID) of Nevada has assumed control over the crypto custodian, effectively pausing its operations as the company is at a “critically deficient level”. In other words, Prime Trust no longer has the right to run its own business.
The announcement comes just days after BitGo astutely abandoned their intended acquisition of Prime Trust, leaving the custodian struggling to regain footing.
So, How Did We Get Here?
As we said earlier, Prime Trust was just a crypto custodian. Its entire business is merely storing money on behalf of other crypto companies.
There is no real good reason why they should be going under.
That is, unless there was gross incompetency…
The problems all started in December 2021, when Prime Trust somehow lost access to the wallets where they stored customers’ crypto. Obviously, that is a panic-inducing situation and to quickly solve it, they allegedly used clients' fiat deposits to satisfy the rush of withdrawals.
FID alleged Prime Trust lost access to legacy wallets in 2021 and used customer assets to buy back crypto
— db (@tier10k)
Jun 27, 2023
This is akin to operating as a Ponzi scheme. No bueno.
Making matters worse, regulators found that Prime Trust owes clients more than $85 million, but has only $3 million of fiat on hand. Furthermore, the custodian owes $69.5 million in crypto assets, but only holds $68.6 million in reserves.
With roughly $83 million in liabilities, Prime Trust’s failures are pretty much irreparable.