Prime Trust Exposes $8 Million Loss Resulting from TerraUSD Collapse in Bankruptcy Filings
Prime Core Technologies, the parent company behind crypto custodian Prime Trust, has publicly shared a concerning financial setback. A loss totaling $8 million was disclosed in a recent bankruptcy filing, tied to the company's investment into TerraUSD (USTC).
The majority of this loss, $6 million, belonged to the client funds, while the remaining $2 million was drained from the company’s treasury.
This revelation uncovers the financial missteps that have now pushed Prime Trust to insolvency. TerraUSD's collapse in May 2022 wasn't a solitary event; its implications echoed throughout the crypto industry, initiating a chain reaction that culminated in a severe market crash. The fallout was catastrophic, with industry giants like FTX, BlockFi, Celsius Network, and Voyager Digital either shuttering their operations or resorting to bankruptcy filings.
The aftermath for Prime Trust has been equally severe. August saw the company filing for bankruptcy within the US jurisdiction. Early estimates indicate liabilities ranging from $100 million to a half a billion, involving a 25,000 to 50,000 creditors. A Nevada court intervention mandated the appointment of a receiver for Prime Trust, driven by concerns that inaction would unleash "irreparable harm" upon both users and the broader cryptocurrency market. Read our in-depth review of Prime Trust.
The filing also notes that the "crypto winter" of summer 2022, which coincided with Terra's collapse and led to industry-wide liquidity losses, resulted in decreased revenues. Despite declining revenue, Prime Trust continued to spend: in October 2022, its expenditure resulted in net losses of $7.4 million, and in November 2022, it resulted in net losses of $8.4 million.
That issue occurred after Prime Trust moved its crypto to the storage service Fireblocks in July 2019. Following the address migration, a mistaken user instruction to a defunct crypto address prevented the company from accessing the funds. To fulfill withdrawal requests from users, Prime Trust had to acquire new cryptocurrency.
Furthermore, regulators brought to light that since December 2021, Prime Trust had been utilizing customer funds to meet withdrawal requests, culminating in a debt of $82 million, encompassing both untracked deposits and fiat currency held on behalf of customers. The company expressed its intention to explore various alternatives, including potential asset sales, as part of the bankruptcy proceedings.