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The Downfall of Crypto-Custodian Darling Prime Trust

Prime Trust was one of the largest and most successful institutional cryptocurrency custody organizations. As a retail trust company, Prime Trust was licensed to hold and manage assets for customers. At one time Prime Trust had about 700 customers, ranging from crypto exchanges, on-ramps, RIAs, broker-dealers and banks. Prime Trust played a significant role in the infrastructure of crypto markets, holding funds on behalf of companies like FTX, Binance.US, and Celsius Network.

PrimeTrust was launched in 2017 and began offering a cryptocurrency trust service in 2018. Later they contracted with digital asset security platform, Fireblocks LLC, to store their crypto assets in its custody. According to court documents, PrimeTrust introduced legacy wallets to customers in January 2021, because of issues with creating new wallets on the Fireblocks platform. However by December 2021 those wallets were inaccessible.

From December 2021 to March 2022, PrimeTrust purchased additional digital currency using customer money from its omnibus customer accounts to satisfy new customer withdrawals. Despite losing access to customer funds stored in digital wallets in 2021, the Board and CEO still chose to raise capital, and in March 2022, they closed their $108M Series B round.

In June 2023, Nevada's Financial Institutions Division (FID) took control of Prime Trust, halted its operations and placed the company into receivership due to an inability to meet customer withdrawal demands. At the time of receivership, Prime Trust had a customer shortfall of $861,000 in digital currency and nearly $83 million in dollars, according to court proceedings.

In August 2023, PrimeTrust filed for Chapter 11 bankruptcy protection, and the public filing has revealed the warts of the worst kind. At the time of filing Prime Trust estimated to have between 25,000 - 50,000 creditors with estimated liabilities of $100M - $500M compared to only having $50 Million to $100 Million worth of estimated assets. The ugly underbelly has also revealed allegations of insider fraud, financial mismanagement, poor governance, and blatant negligence. Even worse, hundreds of hard-working and loyal PrimeTrust employees have lost their livelihoods. Legal proceedings and follow-on lawsuits are currently underway and only time will tell if Prime Trust's past and current leadership will be held fully accountable for their gross missteps.

PrimeTrust had one core responsibility which was to safeguard the digital assets of its clients. The fact that they failed miserably at this is a black eye for the entire cryptocurrency industry as a whole.

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