FTX, the defunct cryptocurrency exchange owned by Sam Bankman-Fried, is planning to sell its subsidiary, Digital Custody Inc. (DCI), to CoinList for a significantly reduced price. The sale comes just months after FTX purchased DCI for $10 million in August 2022, before filing for bankruptcy in November of the same year.
According to court filings, FTX will sell DCI to CoinList for a mere $500,000, which is 95% less than what it paid for the subsidiary. The original CEO of DCI, Terrence Culver, will provide financing to CoinList for the purchase. The decision to sell DCI was made as part of FTX’s efforts to repay its creditors and offload some of its subsidiaries during the bankruptcy process.
DCI was initially acquired by FTX to provide custodial services for FTX.US and U.S.-based LedgerX. However, due to the collapse of the FTX empire, DCI was never integrated into either operation. Following the sale of LedgerX and FTX’s decision not to restart or sell its exchange, DCI had “relatively few operations,” according to the court filing.
Despite its limited operations, DCI remains a valuable franchise as it has already acquired a custody license from South Dakota. The court filing stated that a prompt sale of DCI would enable FTX to avoid further expenses associated with the subsidiary. Additionally, the filing mentioned that DCI is no longer useful to FTX’s business, given the sale of LedgerX and the unlikelihood of selling or restarting FTX US.
The sale of DCI to CoinList and Culver was deemed the best outcome by FTX debtors, considering Culver’s previous role in obtaining the custody license in South Dakota and his ability to execute the purchase quickly. The debtors evaluated bids from other interested buyers but ultimately decided on the sale to CoinList.
Culver will provide financing to CoinList through convertible notes for the purchase. However, there is a $50,000 break-up fee associated with the deal if it falls apart. FTX expressed its intention to repay all its creditors and has been actively trying to sell off its subsidiaries as part of its bankruptcy process. Recently, the exchange announced plans to sell its stake in artificial intelligence startup Anthropic, in which FTX and sister investment firm Alameda invested $500 million in 2021.
In conclusion, FTX’s decision to sell its subsidiary, Digital Custody Inc., to CoinList for a significantly reduced price reflects the challenges faced by the defunct cryptocurrency exchange. The sale is part of FTX’s efforts to repay its creditors and offload its subsidiaries during the bankruptcy process. Despite its limited operations, DCI remains valuable due to its custody license from South Dakota.