Crypto trading and market making firm Auros, a victim of crypto exchange FTX’s bankruptcy, has overcome its liquidity struggles, Chief Investment Officer Benjamin Roth told CoinDesk in an interview.
Auros was released from a court-supervised provisional liquidation last week after a major debt restructuring, and secured a $17 million fresh investment led by traditional high-frequency trading company Vivienne Court Trading and public bitcoin mining company Bit Digital (BTBT).
Before the FTX crash, Auros was among the top 10 to 15 digital asset market makers, handling about 1% to 2% of the total crypto trading volume, according to the company. The firm encountered liquidity troubles in November when some $20 million of its digital assets were stuck on now-defunct FTX and Auros missed payments on some $18 million of decentralized finance (DeFi) loans.
After filing for provisional liquidation on the British Virgin Islands, the firm spent about five months under court supervision negotiating how to repay its outstanding debt and make its creditors whole. Roth said the company is leaving the FTX shock behind.
“We're the same company that we were pre-FTX,” he said.
Navigating FTX fallout
After FTX imploded, and as fear among market participants mounted about a full-blown insolvency crisis in crypto, lenders raced to recall outstanding loans to mitigate potential losses. With a significant chunk of funds locked up on FTX, Auros faced a sudden liquidity crunch to repay all of its desperate creditors.
“We were in a position where we didn't have enough liquid funds to meet all of those open term loans,” Roth said.
The Auros management decided not to repay any of the lenders at the time and voluntarily filed for provisional liquidation with the British Virgin Islands (BVI) court as an intermediary between lenders and Auros.
“We weren't paying immediately because our intention was to pay back everything,” according to Roth. “We've been profitable, so it really was just a matter of buying time to ensure that creditors were all treated fairly and equally.”
The BVI assisted in restructuring all outstanding Auros debt, converting outstanding open-term loans – credit lines without a repayment deadline – to termed loans with maturity. As for the some $18 million of DeFi loans, the firm already repaid 55% of its debt on blockchain-based credit platform Maple, and spread the rest to nine-month and three-month loans, CoinDesk reported last month. Roth declined to disclose details about the restructured debt to centralized lenders citing contractual obligations.
Auros received the sealed court order from the BVI judge terminating the provisional liquidation process last Wednesday, according to the firm’s spokesperson.
Auros ran a lean business, cognizant that crypto markets have been cyclical, but Roth said he was “laser-focused” on finding additional cost savings in recent months.
The firm’s main cost-cutting measure was dramatically reducing Amazon Web Service costs and rethinking data center management – trading businesses need extensive cloud computing capacity to run trading algorithms – to rein in operational costs. It also eliminated staff redundancies and laid off some workers. The firm currently employs about 55 people globally.
Roth said that before FTX’s fall, Auros was already prepared to raise capital, and that the court supervision complicated the fundraising efforts. “It accelerated the requirement to raise but slowed the process because every decision had to go through the provisional liquidators,” he said.
The investment by Vivienne Court means the Australia-based traditional trading firm will have exposure to digital asset trading.
“They were not in crypto, and they were thinking of getting into crypto,” Roth said about the investment.
Marcel Klooss, co-founder of Vivienne Court, said in a statement that "our two firms have complementary skill sets and unique attributes that will generate sustained synergies."
The second-largest investor, the Nasdaq-listed BitDigital, will double as a client and strategic partner for the new derivatives solutions business Auros is expanding to provide yield and protection offerings to clients. For BitDigital and other miners that manage a large treasury of cash and digital assets such as bitcoin (BTC) and ether (ETH), Auros will help them hedge on forward production and earn high yields on their holdings by creating options structures.
"The team’s deep derivatives background and expertise across technology and finance also bring the necessary capabilities to cater to our growing business needs," Samir Tabar, Bit Digital's chief strategy officer, said in a statement.
Other investors in the round include asset manager and blockchain tech developer Trovio, venture capital investment firm Primal Capital, trading firm Epoch Capital and a group of senior and former traders of proprietary trading and market making firm Optiver.
Marcel Klooss and Bit Digital's co-founder Hughes Ching will join Auros’ board of directors.
Auros’ capital raise comes as investments into crypto businesses have mostly evaporated following a year-long bear market.
The investment round was important as Roth expects consolidation in the crypto industry this year.
“A lot of small players will just disappear,” Roth said. “It's not easy out there to make money at the moment, even if you are big and sophisticated.”
UPDATE (March 21, 1:00 UTC): Added details and comments about the investment.
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