Legal advisor waded into the crypto attachment

The collapse of the FTX cryptocurrency exchange last month has threatened another avalanche of corporate slides in an already hot year for the digital assets industry.

The downfall of Sam Bankman-Fried's crypto empire led to the fall of the battered blockfi when the crypto loan finally followed the competitor Voyager Digital and Celsius Network in the bankruptcy according to Chapter 11.

This and other failures of strongly exposed companies - such as the HedgeGreen Arrows Capital at the beginning of the year - have changed the roles of lawyers, investment banks and other professional consultants in the arena.

Until recently, many were involved in constant clashes with the authorities about how crypto, if at all, should be regulated, since the demand for virtual currencies and other digital assets were booming. Now some of these companies are commissioned together with other bankruptcy and restructuring experts to save the remaining value for the creditors.

"It feels a bit like the financial crisis in 2008. And that was mostly listed companies with all types of supervision, and we had no idea how far this infection spread," says Chris Brendler, Senior Analyst at Da Davidson, an investment bank.

It was already a busy year for some leading law firms before the collapse of FTX, since they were involved in attempts to support other crypto companies that have stalled.

Celsius Network was discontinued in June, only to be replaced by the rivals Kirkland & Ellis in June after the stock exchange requested insolvency application and applied for creditor protection within a month. Kirkland & Ellis was also consulted to advise the battered crypto loan Voyager before applying for bankruptcy protection in early July, and helped to save his company with a financial injection from FTX.

Sullivan & Cromwell worked with Blockfi - the last month had made an application for chapter 11 - and helped him to achieve a pioneering settlement of over $ 100 million with the SEC and the state supervisory authorities at the beginning of this year, since it was given the presumed approval of the supervisory authority to market its products as soon as it was in accordance with the conformity. Lawyers of the law firm are now working for FTX and its associated companies on their bankruptcy proceedings in order to regain funds. In the meantime, Kirkland & Ellis has appeared again next to Haynes and Boone to act for Blockfi in procedures according to Chapter 11, as it tries to retain money from FTX companies on behalf of his own creditors.

for Daniel Gwen, partner of the global law firm Ropes & Gray, the collapse of FTX will have long-term effects on the crypto ecosystem

"Failing FTX is a catastrophe for long-term acceptance and growth of cryptocurrencies as a mainstream instrument," he says.

The failure of FTX is a disaster for long -term acceptance and growth of cryptocurrencies

The collapse of the stock exchange is followed by a lengthy downturn in which the market capitalization of the crypto industry of more than $ 3 trillion at the peak of last year's bull market has also fallen to less than $ 1 trillion this year.

Despite the problems on the cryptom market for most of the year 2022, FTX was once as a bastion of cryptostability and Bankman-Fried was praised for the fact that there was ailing crypto company such as Blockfi at the beginning of this year.

The extent of the damage caused by the collapse of FTX is still unclear, but the first court documents indicate that the failed platform could face more than 1 million creditors. Celsius' bankruptcy proposed more than 100,000 creditors, while the early registrations of Three Arrows called a "significant number" of creditors.

These figures show that the protection of consumers will probably become a core concern of politicians and supervisory authorities if they react to the wave of crypto insolvency cases. "In the first place is consumer protection - this type of cases affects consumers," adds Gwen.

Amy Harvey, a process partner at Onier, says that consumers are still subject to risk when re -reaching assets that are not clearly understood or checked. "In the case of crypto companies, these assets are sometimes completely opaque due to the lack of regulation of the industry," she says, adding that the new management of FTX "has to completely revise and find out what the tested accounts are because nothing is submitted".

The collapse of FTX has also triggered a new concern for the interweaving of the industry. Just as the financial burden of Celsius, Three Arrows Capital and other companies such as Voyager Digital and Blockfi was intertwined, FTX's bankruptcy has revived the fears of further, greater infection.

"This industry consists of a group of companies that act with tokens, invest in the products of the other, offer trading platforms for the transaction of these products and keep the products of the other," says Charley Cooper, Managing Director of Blockchain company R3. "If part of the puzzle falls apart, they are all dramatically affected."

concerns about the safe handling of virtual assets were also expressed, which are the subject of procedures according to Chapter 11.

"It was failed to get the potential for hacks under control if there is a change of awake between the owners of the stock exchange and an insolvency administrator," says Darragh Connell, trade lawyer at Maitland Chambers in London, with expertise in crypto disputes.

In the short term, legal experts are likely to benefit from a wave of lucrative bankruptcy and restructuring, since investments in virtual assets are sought worth several billion dollars.

but the sauce train of the advice on the -loving customer in a previously booming sector may already have been ended.

The collapse of FTX could have thrown crypto for years, Gwen from Ropes & Gray suggests.

"Well, since our leading avant -garde failed on its own front, for the most part because of its own corporate supervision.