Quadriga CX’s co-founder suddenly died in December and along with him so did over $130 million in cryptocurrency belonging to the exchange’s customers. According to the exchange’s Facebook page, Gerald Cotten, co-founder and CEO of QuadrigaCX died due to complications from Crohn’s disease while helping set up an orphanage in India.
Unfortunately Cotten was the only one with the password to access over a hundred and thirty million of dollars worth of cryptocurrency which belonged to the platform’s customers. The recent event caused the exchange to halt all operations and apply for creditor protection with the Companies’ Creditors Arrangement Act (CCAA).
What happens now?
Because losing access to over $130 million of cryptocurrency puts the exchange out of business, being a Canadian entity the company’s only option to avoid bankruptcy is the CCAA aka The Companies’ Creditors Arrangement Act.
According to pwc this is a “Federal Act that allows financially troubled corporations the opportunity to restructure their affairs.” In other words, the CCAA is type of insolvency proceeding, the other two being Bankruptcy and Receivership.
Quadriga CX is applying for CCAA via the Nova Scotia Supreme Court. It’s asking to assign Erns & Young Inc. as an independent third party to oversee those proceedings. The hearing is set for February 5th and further updates will be issued after the hearing is over.
If all goes well, Quadriga will present a plan to the court on how it plans to repay its creditors. If the court approves the plan the company will be able to continue its operations with the oversight of the third party. On the other hand, if the court doesn’t approve the plan it is likely that Quadriga CX will be placed into either receivership or bankruptcy.
What can we learn from this?
The recent events highlight not only the importance of delegating access to cryptocurrency or using decentralized exchanges, but it screams the need for proper regulation for these huge exchanges. If there was government oversight or clear regulation on how cryptocurrency exchanges should store their customer’s holdings or even a requirement to obtain certain insurance for their operation then none of this would have happened.
While certain exchanges do a great job organizing their infrastructure in such a way that would prevent this type of failure, other services lack in both security and organization.
What comes to mind is the recent cryptopia hack. Somehow hackers were able to not only steal millions of dollars worth of cryptocurrency from the exchange, but to add insult to injury they kept stealing funds even after the investigation began. You can’t make this shit up! These types of fails really make the cryptocurrency space look like a children’s playground.
This industry needs proper regulation before it can grow further. We are seeing a new trend with STOs after millions of investors got scammed with ICOs and it’s time to move on from centralized exchanges before more people lose their funds. You would think the lessons was learned after MtGox’s fall but nothing seems further from the truth.