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1. What happened?
In recent months, several large companies active in the crypto market have collapsed. This has created so-called liquidity problems at Digital Currency Group and its subsidiaries ("DCG"). Bitvavo uses DCG to offer its staking services. This means DCG cannot immediately repay their outstanding balances to Bitvavo. The total amount involved is 280 million euros.
On 15 December, Bitvavo reported taking over the entire debt and indemnifying its customers. As a result, our customers are not affected by the current liquidity problems and can withdraw their funds at any time.
Bitvavo now considers this a matter between Bitvavo and DCG.
2. How does staking work at Bitvavo?
Staking is currently split into two forms: on-chain staking and off-chain staking.
- For on-chain staking, we use Proof-of-Stake networks. Participants who put assets to work on them receive a reward for doing so. We pay most of that reward to the customer.
- For off-chain staking, we use third-party providers such as DCG and Coinbase Lending. For customers who enable staking, we lend assets to this third party for a fee. We pay most of that fee to the customer. Only assets in this offchain-staking category are involved in the resulting situation.
Following the recent developments, we have recalled all outstanding assets except those still held by DCG.
3. Can I unstake my assets?
Yes, you can opt out from the staking services at any moment. Note that you will no longer receive staking rewards until you opt back in.
4. How is this compatible with 1-to-1 retention of customer assets?
For Bitvavo, 1-to-1 holding of assets means that we keep customers' assets in the form in which they were deposited and Bitvavo does not do anything with those assets without the customer's explicit instruction.
- For customers using our custody, trading and on-chain staking services, the balances are in our vault.
- For off-chain staking, we lend the assets to a third party; these assets are held with us in the form of a receivable.
Customer funds and crypto assets are available for withdrawal at any time. Regarding the current assets held at DCG, Bitvavo has chosen to guarantee these assets and is able to pre-finance all locked assets at DCG.
5. Will Bitvavo continue to offer this staking service?
In the first quarter of 2023, we will review our staking service. In doing so, we will choose:
- we stop offering off-chain staking services entirely; or
- continue to offer them but (i) call them "earn of lending", (ii) separate them from our on-chain staking services and (iii) also put even more emphasis on transparency and user-friendliness (where customers can choose per asset whether they wish to use them or not).
- In addition, we will also explore the possibility of continuing to offer this service on an over collateralized basis, which could potentially have implications on fees. More on this later.
6. Can customers withdraw their assets?
All Bitvavo customers can withdraw their assets at any time. This applies to their euro assets, crypto assets, and the crypto assets using our staking services.
The Bitvavo platform has not been affected by the current situation and all services are functioning as our customers would expect from us.
7. Which funds would be affected?
Bitvavo Custody BV, a part of the Bitvavo Group, has used services from DCG to offer off-chain staking services to its clients. Only off-chain staking funds have been used in relation to DCG. Participating in the off-chain staking services is optional, and is disabled by default. Clients can choose to enable off-chain staking services, to earn additional rewards on their assets.
Bitvavo will never use or lend the customer's resources without explicit permission. In addition, our risk management is designed to protect our customers' assets. For this reason, all customer assets can be withdrawn immediately and at any time.
As previously stated, Bitvavo expects that the outstanding deposits will be reimbursed by DCG. Bitvavo is able to refund the locked assets at DCG, to ensure that withdrawals of customer assets will be able to be processed at any time so that Bitvavo customers are not exposed to DCG liquidity issues.
8. How did Bitvavo get the 280 million euros?
Bitvavo has ample funds to pre-finance the outstanding amount with DCG. Our reserve consists of the results achieved in recent years (around 250 million euros) and existing credit facilities. In total, we currently have financial resources worth around 293 million euros and can increase this further if required.
9. When will the financial statements be filed?
Our auditor issued an unqualified opinion on our financial statements 2021 on 16 December 2022. This already took into account the current situation. The annual accounts 2021 have been published before 31 December 2022.
10. Is it correct that the DCG situation has no impact?
The current situation at DCG does not have any impact on the Bitvavo platform. Bitvavo will continue to offer the services that our customers expect from us. This will not be affected in any way by the current situation at DCG.
Bitvavo has been solvent and in a solid financial position since it started. Bitvavo is able to prefund the locked assets at DCG, to ensure that withdrawals of customer assets will be able to be processed at any time, so that Bitvavo customers are not exposed to DCG liquidity issues.
11. Will DCG repay the 280 million?
Bitvavo is in active discussions with DCG and other creditors involved. Together, we have drawn up a plan to solve the liquidity problems. A positive aspect of this is that the proposed solution is suitable for all concerned.
The financial information previously shared with us by DCG shows that DCG has sufficient funds to meet its outstanding liabilities over time, including those to Bitvavo.
In the unlikely event that DCG cannot meet its obligations, that is a problem of Bitvavo and not the customers. We want to emphasize again that this scenario is not an obstacle to Bitvavo's survival.
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