CEO describes collapse of unregulated crypto lenders as WonderFi’s “thesis playing out in real time.”
At the beginning of this year, WonderFi co-founder and CEO Ben Samaroo had his sights set on making WonderFi as big as Voyager Digital, which had a roughly $3 billion market capitalization at the time.
Since then, the crypto market has been crushed: over $2 trillion USD in value has been wiped out, and crypto lenders like Voyager Digital, Genesis, BlockFi, Celsius, and Vauld have reportedly struggled to remain solvent amid the collapse of cryptocurrency asset prices.
“We wouldn’t have been able to do something like that with being regulated by the OSC.”
Some of these firms have suspended account withdrawals during this liquidity crisis, while other companies have become acquisition targets at a fraction of their previous valuation. Others have filed for bankruptcy, like Voyager Digital, which was heavily exposed to failed crypto hedge fund Three Arrows Capital.
Samaroo believes some of this recent activity in the unregulated crypto space could benefit his Vancouver-based crypto company in the long-run. He predicts that the collapse of Voyager Digital and other unregulated crypto platforms will create additional space for a regulated entity like WonderFi.
Unlike Voyager Digital, which offers both crypto trading and lending (a much riskier space given the volatility of crypto prices), WonderFi has focused on trading given its regulated status in Canada. Referring to Voyager Digital’s decision to offer lending, Samaroo told BetaKit, “That’s something that they took on for higher, faster growth, and then obviously it backfired.”
“It’s basically [WonderFi’s] thesis playing out in real time, which is being compliant and regulated,” said Samaroo. “We wouldn’t have been able to do something like that with being regulated by the [Ontario Securities Commission].”
Samaroo noted that WonderFi is “open to exploring lending in a regulated way,” but added that he doesn’t think regulators are “quite there yet.” How Canadian securities regulators plan to police crypto lenders remains unclear.
WonderFi, which trades on the TSX as ‘WNDR,’ aims to build a “compliant crypto ecosystem” spanning crypto trading, DeFi, and NFTs and gaming through acquisitions. Earlier this year, WonderFi acquired Bitbuy—Canada’s first crypto marketplace to be regulated by and registered with Canadian securities regulators—for $206 million CAD in cash and shares.
This week, WonderFi closed its acquisition of another licensed Canadian crypto platform, Coinberry, for approximately $38.5 million CAD. The all-stock deal comes after Coinberry reached a settlement with capital pool company Cinaport Acquisition Corp. III, following its failed TSXV takeover.
Samaroo has forecasted more consolidation in the crypto space given increasing regulatory pressure and rising customer acquisition costs. Over the past couple of weeks, this prediction has played out as embattled crypto lenders like BlockFi and Vauld have become acquisition targets for other well-capitalized crypto players FTX and Nexo.
In a recent interview with Forbes, FTX founder and CEO Sam Bankman-Fried claimed that “there are some third-tier exchanges that are already secretly insolvent” amid the crypto crash. For his part, Samaroo expects other non-regulated crypto trading platforms—including those that have expanded into crypto lending—to face similar issues.
Samaroo said that more acquisitions are on the table for WonderFi as solvency issues and reduced valuations have made other companies more attractive acquisition targets. WonderFi has begun to consider acquiring other non-regulated exchanges both in Canada and abroad in light of these conditions.
WonderFi has certainly not been immune from the crypto crash—WonderFi-owned Bitbuy has seen declines across the board since the beginning of April. This includes a sharp drop in crypto prices, trading activity, and volatility—where the company makes its money.
To navigate this environment, WonderFi laid off 18 percent of its employees following its acquisition of Bitbuy. Samaroo attributed some of these cuts to broader market conditions, while others were planned as part of the acquisition to deliver shared services across WonderFi and Bitbuy.
“I feel like it’s like an education for businesses in the space, for users, for regulators.”
When asked whether all of Coinberry’s staff will be joining WonderFi as part of its latest acquisition, Samaroo suggested that there will be more layoffs. “We’re going to evaluate, but I think there’s a lot of room for these operational synergies across all of the various departments,” he said.
According to Samaroo, the short-term repercussions of the collapse of platforms like Voyager Digital is “very real.” The CEO said crypto users and investors alike have been “spooked” by the collapse of platforms like Voyager Digital. “It’s definitely cause for pause,” he added. “That’ll be the first thing that’s on their mind when they’re deciding whether to buy a crypto asset or stock is, ‘This just happened, is that going to happen to me?’”
“The positive light is that it does—I may regret saying this—but I feel like it’s like an education for businesses in the space, for users, for regulators,” said Samaroo. “The longer tail of it is that there will be more improvements. Whether those users ever come back is something that I don’t know, but I think it does serve as a catalyst … [for preventing other] situations like [Voyager Digital].”
Feature image by Alesia Kozik via Pexels.