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Zhu Su and Kyle Davies, the former co-founders of Three Arrows Capital (3AC), are seeking funds for a new venture, which they call GTX.
Since the collapse of the hedge fund in June 2022, the pair’s whereabouts have been unknown. Despite this, they have been active on social media over the last two months, taking potshots at FTX founder Sam Bankman-Fried.
For this new venture, they are collaborating with the former co-founders of CoinFLEX, Mark Lamb and Sudhu Arumugam.
The group is seeking US$25 million in seed funding to bring the company online as soon as possible. The plan is to help clients from bankrupt exchanges like FTX or other insolvent companies recover their capital and start investing again.
According to the new startup’s pitch, the crypto claims market is estimated to be worth US$20 billion against fallen companies.
How will GTX help clients of bankrupt companies?
Given how the second half of 2022 was a bloodbath for much of crypto, it may not be an exaggeration to say that US$20 billion is a believable figure.
Celsius listed its liabilities at US$1.26 billion, and FTX had around US$8 billion in liabilities. And that’s not even the worst of it — the collapse of the Terra network apparently cost investors US$40 billion.
Many of these companies are now involved in lengthy lawsuits with their clients, who hope to recover some of the money that they invested.
GTX’s plan is to tokenise these claims, and create an exchange where these claims can be traded. These tokens can then be used as collateral for trading, and bring investors back into the market.
Instead of simply sitting back and waiting for the outcome of a lawsuit that may not give them their money back anyway, GTX will instead provide a market for clients to trade their claims as tokens and get their money back now.
In exchange, GTX will take a small transaction fee of between 0.25 to 0.5 per cent.
GTX plan draws online criticism
If Twitter’s reaction is anything to go by, GTX is not likely to get any money.
Users laughed at the irony of the proposition, and expressed doubts as to the trustworthiness of the founding team.
Indeed, Twitter may be on to something. A quick look at GTX’s pitch reveals some questionable assumptions by its founders.
The first is that customers are likely looking to diversify exchange risk after the FTX crash, and that the collapse of FTX has created a power vacuum that GTX will be able to fill.
The first part may well be true — customers do need to find exchanges to hold their coins, and putting all your eggs in one basket is rarely the way to go in crypto.
The question is whether or not GTX can really capture such a large market. FTX left some big shoes to fill, and why all of FTX’s customers would go to GTX is something that GTX’s founders have yet to answer.
After all, some customers may be put off by the lack of regulations in the space that they leave it entirely. Alternatively, those who still have an appetite for crypto investments may turn to more established exchanges like Coinbase Exchange, Binance, or Kraken.
What crypto claims market?
On top of this, it’s not as if the crypto claims market is a gold mine sitting around waiting for prospectors to make their riches.
GTX’s own pitch recognises that there are competitors on the market, with much of the same offerings.
The most prominent is XClaim, which operates as a marketplace for claims to help crypto holders bypass the bankruptcy process and cash out at the best price possible.
Currently, they claim that FTX users are getting around 15.5 per cent of their account balances back, while Celsius’ customers are getting around 17.5 per cent.
If it seems awfully similar to GTX’s proposal, you’d be right. GTX is basically offering the same thing and saying that they’ll charge less as an intermediary and offer more as a marketplace.
It is quite the incredulous proposition, considering that GTX’s founders are disgraced entrepreneurs while Xclaim has been in the market since 2018, and its founder claims 15 years of experience in distressed legal, trading, advisory, and interim management roles.
Dealing with a company helmed by founders that have absolutely no relevant experience and instead have outstanding lawsuits against them hardly seems the safest bet for retail investors that may have already lost their bets in Luna, FTX, or Celsius.
So why would anyone in their right mind gamble on the new GTX when its founders are mainly known for failed ventures?
It’s not money that GTX will need, but credibility
Actually, the idea itself is not a bad one. XClaim’s success so far has demonstrated that there is a market for claims. The difference however, is that XClaim has a proper team with relevant experience, and the battle scars to prove it.
What is most concerning about GTX is the credibility issues that the founding team will have. After all, it’s far too soon to say that 3AC and CoinFLEX have been forgotten.
3AC founders have been trading blows on Twitter with liquidators over the past few months, and CoinFLEX is still in the midst of liquidation proceedings.
But the issue is that GTX’s founders are not men of good repute. Instead, they are directly linked to business failures who, with this latest pitch, seem to be trapped in the past.
3AC’s founders branded themselves as having made “40x in FX and 80x in crypto”. What they fail to realise is that most people will also remember that these founders were also too blinded on hype and allowed the fund to sink into the red.
As one of the more prominent bankruptcies in the crypto space, the founders will have this black mark on their record for a while and until it is properly addressed, questions about their credibility will always remain.
If someone with a better reputation came along and floated the idea with a more believable pitch than that, the company would be able to dominate the market within two to three months of going live. The idea may well have seen some welcome by investors.
But as it stands, few in their right minds should be setting up meetings with GTX’s founders to discuss investments right now.
And more than that, since the founders are all embroiled in legal disputes, there is also a very practical concern of licensing. The background of GTX’s background would very likely raise red flags for regulators all over the world, if they do not already send alarm bells ringing for customers.
Without the proper licenses to operate, will GTX be able to function properly, and will it be able to attract the customer base that it claims to appeal to?
The past few days have been a baptism of fire for GTX’s founders, and for good reason.
The complete lack of accountability that the founders have displayed with their previous ventures more than justifies the sceptical reactions that they are receiving from the community, and if the founders are ever to turn their admittedly semi-decent idea into reality, they cannot ignore the fact that they remain, as of now, disgraced outcasts of the community.
Finding that first vote of confidence from investors and customers will likely prove tough, until the founders properly extricate themselves from the debacle that was 3AC and CoinFLEX.
Featured Image Credit: T. Schneider / Shutterstock