U.S. Regulator Targets Voyager’s Former Chief 

The U.S. Commodity Futures Trading Commission (CFTC) has initiated legal action against Stephen Ehrlich, the ex-CEO of crypto lending platform Voyager Digital. 

On Oct. 12, the CFTC announced it was bringing a case in the U.S. District Court for the Southern District of New York against Ehrlich and Voyager. The allegations include fraud and failing to register in relation to the firm’s “unlicensed commodity pool”. The regulatory body expressed its intentions to pursue restitution, disgorgement of profits, monetary penalties, and permanent bans on trading and registration. 

The CFTC accused Ehrlich and Voyager of misleadingly portraying the Voyager platform as a secure option for customers to achieve significant returns on their digital assets. But what mechanisms did Voyager employ to produce these returns, particularly during the former era of “zero interest rate policy”? Voyager Digital, a digital asset platform, enticed its users with compelling interest rates for holding specific cryptocurrencies, including Voyager Token (VGX). Such rates, provided by Voyager and platforms alike, often acted as incentives for users to keep and deposit their tokens, allowing the platform to leverage them for various activities. Here’s how platforms like Voyager might generate returns to provide such interest:

Lending: Platforms can offer deposited assets as loans to institutional entities, such as hedge funds, who are willing to pay an interest for these assets, which could be utilized for trading or hedging strategies.

Staking: Several cryptocurrencies allow for staking. By holding and staking these coins, users support network operations, like transaction validation, and can earn rewards. Platforms like Voyager can pool user stakes to garner these rewards collectively.

In-house Trading: Platforms might participate in trading, utilizing user-deposited assets to realize trading gains.

Margin Trading: Platforms might allow users to trade on margin, borrowing assets for this purpose. The interest and associated fees on these borrowed assets can generate revenue for the platform.

Loan Security: Platforms might offer loans to users, holding their crypto as security, and then charge interest on the provided fiat or stablecoin loans.

Ultimately, what did them in was the counter-party risk that they did not fully mitigate against, as Three Arrows Capital defaulted on Voyager’s loan and started an avalanche of failure.