CoinList Snaps Up FTX’s Custody Arm for a Fraction of Its Original Price

CoinList, a platform for token sales and trading, has agreed to buy Digital Custody Inc. (DCI), a licensed custodian for digital assets, from the bankrupt FTX estate. The deal, which is subject to court approval, values DCI at just $500,000, a steep drop from the $10 million that FTX paid for it in two transactions in 2021 and 2022.

Why CoinList Wants DCI

According to the court filing, CoinList was one of the three interested parties that submitted offers for DCI, along with Terence Culver, the original CEO and seller of DCI, and another unnamed bidder. CoinList’s offer was selected by the FTX Debtors estate, led by CEO John Ray III, as the most favorable one, based on the following factors:

• CoinList offered to pay $500,000 in cash, plus the acquired cash amount, which is the amount of cash held by DCI at the time of closing.
• CoinList has an existing relationship with Culver, who will provide the financing for the deal. This will help expedite the regulatory approval process, as DCI holds a license from the South Dakota Division of Banking to provide custodial services.
• CoinList can complete the transaction quickly, as it has already conducted due diligence on DCI and has no financing contingencies.

CoinList’s interest in DCI stems from its desire to expand its custodial services for its customers, who include both retail and institutional investors. CoinList currently offers two types of custody solutions: CoinList Wallet, which is a self-custody option that allows users to access their funds anytime, and CoinList Pro Custody, which is a third-party custody option that provides enhanced security and insurance coverage.

By acquiring DCI, CoinList will be able to leverage its license and technology to offer more custodial options and features, such as multi-signature wallets, cold storage, and regulatory compliance. CoinList will also be able to integrate DCI’s services with its other products, such as token sales, trading, staking, and lending.

Why FTX Is Selling DCI

The sale of DCI is part of the FTX estate’s efforts to liquidate its assets and repay its creditors, who are owed more than $1.2 billion. FTX, which was once one of the largest and most innovative crypto exchanges in the world, filed for bankruptcy in November 2022, after its former CEO Sam Bankman-Fried (SBF) was accused of fraud, market manipulation, and money laundering by the U.S. authorities.

FTX had acquired DCI in two separate transactions, one in December 2021 and the other in August 2022, for a total of $10 million. The acquisition was intended to offer custodial services for FTX.US and LedgerX, two platforms that FTX had also acquired in 2021. However, due to SBF’s legal troubles and the subsequent collapse of FTX, the integration of DCI into the FTX ecosystem never materialized, rendering the subsidiary essentially worthless to the FTX estate.

Despite its limited value to FTX, DCI still holds a valuable license from the South Dakota Division of Banking, which allows it to provide custodial services for digital assets. This license is one of the few in the U.S. that is recognized by the federal government and the Securities and Exchange Commission (SEC). Therefore, DCI could still attract buyers who are looking for a regulated and compliant custodian for their crypto assets.

What’s Next for the Deal

The deal between CoinList and the FTX estate is subject to court approval, which is expected to be granted on February 22, 2024. However, as part of the agreement, FTX retains the right to consider more favorable offers for DCI up until three days before the closing of the deal. A reverse-termination fee of $50,000 will be imposed if CoinList fails to finalize the transaction.

The sale of DCI is not the only asset that the FTX estate is looking to sell. Last week, FTX sought approval to sell its 8% stake in AI startup Anthropic Holdings, which is backed by prominent figures such as Elon Musk and Vitalik Buterin. The price sought for the Anthropic shares has been redacted from the filing, but FTX’s lawyers believe that public disclosure could hinder the potential to obtain higher offers for the stake.

The FTX estate is also working on a proposed plan of reorganization, which will determine how the creditors will be repaid. The plan, which has been approved by the Committee and the Ad Hoc Committee of Non-US Customers of FTX.com, involves liquidating a substantial amount of crypto assets, which could potentially affect the market prices. The creditors are expected to vote on the plan soon, and the court will hold a confirmation hearing on March 15, 2024.