Failed Crypto Custodian Prime Trust Reveals $8 Million Losses in TerraUSD Investment

Crypto custodian Prime Trust has unveiled new revelations about its financial setbacks in a recent filing submitted to bankruptcy courts on August 24. The company’s struggles, which had previously been shrouded in mystery, have now been brought to light, shedding light on a series of unfortunate investments and operational missteps.

The most significant revelation in the filing concerns Prime Trust’s ill-fated investment in the TerraUSD (USTC) stablecoin. This particular venture turned out to be a major source of trouble, resulting in a staggering loss of $8 million for the company. Specifically, Prime Trust’s involvement with the now-defunct stablecoin led to the depletion of $6 million from client funds and an additional $2 million from treasury funds. This combined loss has sent shockwaves through the industry, highlighting the risks inherent in the volatile world of cryptocurrency investments.

The period around the collapse of TerraUSD coincided with what is being referred to as the “crypto winter” of the summer of 2022. This widespread liquidity crisis across the industry had a noticeable impact on Prime Trust’s revenue streams. As the filing indicates, reduced revenues during this period prompted the company to reassess its financial strategy. Despite these declining revenues, Prime Trust continued to operate as usual, resulting in dire financial consequences.

The repercussions of these events were reflected in the company’s financial statements. In October 2022, Prime Trust recorded net losses of a staggering $7.4 million, which were further exacerbated in November 2022, with net losses ballooning to $8.4 million. The inability to halt these mounting losses raises questions about the management’s decisions and strategies during this tumultuous period.

One unexpected twist in this saga is Prime Trust’s purchase of $76.4 million worth of Ethereum (ETH) to meet customer withdrawal requests. The company found itself in a bind after it lost access to certain funds following a migration of its crypto holdings to the storage service Fireblocks in July 2019. Due to an inadvertent miscommunication, users were directed to send funds to an obsolete crypto address, effectively rendering the funds inaccessible. To rectify the situation, Prime Trust had no choice but to purchase substantial amounts of Ethereum to cover the pending user withdrawals.

Despite these efforts, Prime Trust struggled to regain its financial footing. The company reportedly made attempts to raise additional funds, likely in a bid to recover from the losses incurred. Unfortunately, these efforts proved unsuccessful, painting a bleak picture for the once-promising crypto custodian.

The saga of Prime Trust serves as a stark reminder of the unpredictable nature of the cryptocurrency market. The company’s misguided investment decisions and operational blunders offer valuable lessons for both industry players and regulators. As the crypto landscape continues to evolve, investors and custodians alike are urged to exercise caution and due diligence to avoid similar pitfalls.

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