Aug 28, 2023

Prime Trust CEO Jor Law said in a recent court filing that the crypto custodian lost a total of $8 million in a doomed investment in the terraUSD algorithmic stablecoin.

Video transcript

We got new core filing from CEO who spoke about Aport investment in the Terra Luna S Coin Prime Trust lost $6 million of client funds and $2 million from its own treasury. This of course comes after they lost about $80 million total in both fiat and crypto of client money. When they had their wallet set up incorrectly. Right now, Prime Trust is going through Receivership processes process with the state of Nevada. Prime Trust was of the largest backends for a lot of crypto marketplaces. People use them to build wallet services for exchanges for Receivership and ownership of crypto assets. Uh Now that it's starting to fall apart a little bit, this also comes after bit go tried to purchase uh the Prime Trust, but that fell through again because of a lack of financial security within the firm. Jen. I got through the story over to you more bad news at Prime Trust like there's the legal filings for this one are put up with the best, the best in terms of like bad judgment decision making from companies. What a mess. Now, I have to say when I read, you know, poor planning, like companies in the bull market had poor planning. They couldn't see what was gonna happen in the bear. I am a little bit sympathetic because you know, there's a lot of demand in the bull market. There's a lot of like mainstream collaborations and partnerships and you need resources to keep up with that. That said that I don't think that happened here. I think that this is just a total mess. When I read through this, there's some stuff I want to point to, they said that they were uh out spending and gave some numbers. So October, the company spent $10.5 million but only made $3.1 million. So they lost $7 million in October. And then it's like no one learned anything. They went on to November and spent $11.1 million and lost eight some odd million dollars. And so that is crazy. I feel like that is poor planning that is not looking at what's happening at your company and readjusting and being flexible. And those are some of the allegations that are made against the executive team here that they were not able to adjust and be flexible. The other crazy thing here is this wallet situation. They lost access to their wallet because I'm just going to tell our audience what happened here super quickly and they're going to pass it to Zach because he is nodding along with a big smirk. On his face. So prime trust moved its wallets over to a system operated by fire blocks. Then they did not realize that the migration from the legacy wallets to the new system was incomplete and that customers were still sending funds to that wallet. And then it learned the mistakes later when an unidentified customer requested a large amount of E and withdrawal and they could not fulfill that. And then it seems like they were converting fiat into e to fulfill these requests, which just sounds crazy, but I'm honestly not shocked or surprised given all the news we've been covering over the last six months to a year. Zach, uh the case of 98 f that wallet episode, it just reads like prime trust. No good. Very bad. Horrible day. That whole saga. We knew a little bit. I think back in June about this mishap that occurred when they were transitioning their system over to fire blocks, which is another custody provider. And that one just reads like a saga of pain. So yeah, check out the court filing for a full telling of the 98 episode and then think to yourself that yes, custody and digital assets can be hard even for those professionally entrusted to do so. Right. So I think the custody conversation is very relevant here. I will point out that the Terra Luna collapse continues to be the gift that keeps on giving so much of the pain in the market really stems from people getting overextended into that ecosystem on the strength or the apparent strength of the promises by Dow and others. And that ended up being sort of a land mine that many a project including now Prime Trust stepped on in terms of losing funds and losing the ability to stay solvent. So, yeah, Terra definitely part of this story, but I think probably the bigger picture is that custody story, right? We keep going back to this idea of like custody is a set of tradeoffs. Self custody has its own tradeoffs. Uh having a custodial arrangement with an outside party has another set of tradeoffs entirely. But this one to me um just represents again the difficulty that many people especially entering the space face when thinking about these challenges of self custody because these guys got burned really bad by not being able to access something that, you know, was a big part of their business and they only lately only realized like later on that. Oops, like we don't have the steel and grave things that we need to access this and it just becomes a big, big problem. So the custody angle maybe is the most illustrative here just for people. Oh, excuse me, sorry for people themselves. But um certainly yeah, pretty uh pretty painful telling of that whole episode. But yeah, businesses man, they remain fascinating to cover because you get these uh these sort of after the fact tellings of all the things that went wrong, Wendy. What do you think? What if we ever have like a Bitcoin back ETF that's from, and they actually have to hold the Bitcoin and like, somebody like, um, like loses the keys and like that happens. Oh, man, that will be a day. Oh boy. Let's hope it doesn't happen. That's my take. That is a hot take. W what happens if, but no, I'm being serious. What happens if the sec would have stepped in initially and said, hey, if you're gonna be custody these products, if you're gonna be, you know, acting as a broker or whatever it is, you actually have to have the reserve, the reserve set to a certain area, like we have to be able to check, you know, to make sure that those reserves are set more transparent if the CC would have actually done their job. I feel like we wouldn't have had as many of these problems like Japan is a perfect example um with the whole situation that any type of crypto exchange or whatever type of services there is, is operating there, um They have to actually show those proof of reserve. So again, I feel like our public servants have yet let us down again. And it's very sad that um they're kind of like the parents that just kind of let you run off into the wild and then get hurt and then they come down and they just punish you like a million times harder.

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