The parent company of cryptocurrency custodian Prime Trust has revealed a significant loss of approximately $8 million as a result of investments in TerraUSD (USTC). The loss comprises $6 million from client funds and an additional $2 million from treasury funds, both attributed to investments in the algorithmic stablecoin.
Financial Setback Under Previous Leadership
Prime Core Technologies, the parent company in question, acknowledged the financial setback in an official filing with the United States Bankruptcy Court for the District of Delaware on August 24. The company highlighted that these losses occurred during the tenure of its prior management.
It is believed that these investments took place around the time when the TerraUSD suffered a collapse in May 2022. This turn of events, coupled with escalated spending during October and November 2022, played a pivotal role in Prime Core Technologies’ decision to file for Chapter 11 bankruptcy.
Impact of the Broader Crypto Market Conditions
The filing further noted that the downturn in the broader cryptocurrency market, often referred to as the “crypto winter,” did not directly trigger the financial troubles leading to the bankruptcy filing and the initiation of the Chapter 11 proceedings. However, the company acknowledged the indirect effects of the crypto winter, which resulted in reduced revenues and overall financial strain.
Prime Trust took the step of filing for bankruptcy in the United States in August, estimating its liabilities to fall in the range of $100 million to $500 million. This move followed a court order from Nevada, which appointed a receiver for Prime Trust due to concerns about potential harm to users, the general public, and the credibility of the emerging cryptocurrency market.
Debt Composition and Receivership
A filing in June provided a clearer picture of Prime Trust’s financial situation, indicating that the company owed its clients over $85 million in fiat and $69.5 million in cryptocurrency. This debt contrasted with the relatively low holdings of $2.9 million in fiat and $68.6 million in crypto.
Nevada’s Financial Institutions Division had taken steps to place the company under receivership in June, citing a significant gap between its assets and liabilities.
TerraUSD’s Impact and Broader Consequences
The collapse of TerraUSD in 2022 is widely considered a pivotal event that contributed to a substantial crash in the cryptocurrency market. This year saw the collapse or bankruptcy filing of various firms in the sector, including FTX, BlockFi, Celsius Network, and Voyager Digital.
Notably, Do Kwon, the founder of Terraform Labs, is presently serving a prison sentence for using falsified travel documents. He could potentially face prosecution in both the United States and South Korea in the time to come.
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