Gopax, a major South Korean cryptocurrency exchange and one of the top five by market share, is reportedly navigating financial turmoil after it sold user deposit claims for only half their original value. This drastic measure was taken as part of the fallout from the collapse of the crypto lending giant Genesis Global in November 2022.
Background
Gopax, majority-owned by the global cryptocurrency leader Binance, has found itself entangled in financial difficulties after Genesis Global’s bankruptcy significantly impacted its operations. Genesis was instrumental in operating Gopax’s crypto custody service, GoFi, and its collapse left Gopax with a substantial financial gap.
According to a report from the Korea Economic Daily, Gopax owes its users around 70 billion South Korean won ($51.4 million), a debt originating from its exposure to Genesis. The report details that while Gopax has managed to return 50% of the owed amounts to its users, the remaining 35 billion won worth of digital assets have significantly appreciated in value, potentially complicating recovery efforts.
Sale of Claims
In the depths of the crypto market downturn in November 2022, the value of these assets was considerably lower. Gopax took the controversial step of selling these claims to a third party at a reduced price, using the proceeds to fulfill some of the user debts. This sale has led to only a partial recovery for affected users, with promises of further payments contingent upon the completion of Gopax’s acquisition process.
Binance acquired a significant equity position in Gopax in February 2023, signaling a strategic move to re-enter the South Korean market. However, this acquisition has been overshadowed by a lawsuit from the United States Securities and Exchange Commission against Binance, which has caused delays and brought additional scrutiny from South Korea’s Financial Services Committee.
Legal Developments
Genesis, for its part, has seen developments in its bankruptcy proceedings. In a recent decision, U.S. bankruptcy courts approved a $3-billion plan allowing Genesis to return funds to its creditors. This ruling overcame objections from Digital Currency Group, which argued against full repayment of the crypto assets’ current values, fearing it would leave them with no recovery from the bankruptcy.
The situation surrounding Gopax illustrates the cascading impact of the crypto market’s volatility and regulatory challenges on cryptocurrency exchanges. The company’s decision to sell creditor claims at a discount has sparked debate about the best approaches to managing financial crises within the crypto industry. As the market stabilizes, Gopax and its stakeholders may still face significant hurdles in recovering from this financial episode.
Featured image credit: Nuno Patricio via Flickr