Crypto Firms Face Turmoil as Prime Trust Fallout Causes Service Disruptions and Concerns

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After the Bitgo acquisition deal to purchase Prime Trust fell through, it seems that crypto firms that have worked with the custodian are experiencing problems. On Thursday, Seattle-based fintech startup Stably announced the need to “temporarily pause” certain services and operations. According to reports, the bitcoin payments platform, Strike, is also encountering difficulties and has purportedly suspended direct deposits.

Stably to Halt Services, Customer Email Shows Prime Trust Issues May Be Giving Strike a Headache

The cryptocurrency custodian, Prime Trust, has become a subject of widespread discussion on crypto forums and social media on June 22. Reports revealed that Prime Trust has suspended withdrawals and deposits, a fact confirmed by customers who utilized the services of Prime Trust. Seattle-based crypto firm Stably shared this information through a blog post. In a letter from Prime Trust, it was stated that the firm received an order from the Nevada Financial Institution Division, and it expressed hope to “return to business as usual as soon as possible.”

The Prime Trust situation should be a lesson that your bitcoin is not “safe” on any 3rd party custodian, even if it’s one that plebs tell you is fine b/c “all your sats are in a trust account w/your name on it”

Learn to self custody. It’s the only way to truly own your bitcoin.

— Justine Harper (@mshodl) June 22, 2023

This has caused inconvenience for Stably, leading the company to temporarily suspend the majority of its services. On Thursday, the stablecoin issuer TUSD stated that it remained unaffected by the situation, despite having conducted business with both firms. “Prime Trust has suspended all deposits of fiat and digital assets,” TUSD said on Twitter. TUSD is is not affected by this situation. We have no exposure to Prime Trust and maintain multiple USD rails for minting and redemption. Rest assured, all your funds are safe with TUSD.”

In an official report published by the Nevada Financial Institution Division, Prime Trust encountered a critical financial predicament on or around June 21, 2023, resulting in its inability “to honor customer withdrawals due to a shortfall of customer funds caused by a significant liability on the respondents’ balance sheet.” The division further states that Prime Trust has violated its fiduciary obligations and has consequently been mandated to cease and desist all business operations. Prime Trust has refrained from making any Twitter announcements concerning the issue.

Prime Trust has collaborated with several companies, including Abra, Augeo, Swan Bitcoin, Binance US, Dapper Labs, and Strike. In May, Swan Bitcoin informed its customers that it would be moving assets from Prime Trust to Bitgo and Fortress Trust. Just before Bitgo backed away from the Prime Trust deal, the custodian Prime Trust’s subsidiary Banq filed for Chapter 11 bankruptcy protection.

All @Swanbitcoin customer funds were transferred from Prime Trust to Fortress and BitGo.

There is zero precedent for clawback of customer funds from individual bankruptcy-remote TRUST accounts– it’s the whole point. Unlike the unsecured creditors of Celsius and FTX, Swan client…

— Cory Klippsten Swan.com #Bitcoin (@coryklippsten) June 22, 2023

There are reports suggesting that the bitcoin payments company Strike is facing challenges due to its association with Prime Trust. A customer alleges receiving an email from Strike indicating the suspension of direct deposits and temporary disruptions in card services. However, according to Strike’s status page, it states that all services are currently operational. Right now the crypto community and armchair sleuths are trying to figure out which firms have direct exposure to the crypto custodian.

What are your thoughts on the impact of Prime Trust’s suspension of services on the crypto industry? Share your thoughts and opinions about this subject in the comments section below.