In the unlikely event MyConstant ceased trading, what would happen to your assets?
Many of you have asked what would happen to your funds if MyConstant went bankrupt. It’s a scary thought, and requires a little explanation. First, let me emphasize we plan on sticking around. We’re growing faster than ever before, having matched almost $50M in loan volume since launch in early 2019.
That said, the future is not guaranteed. It’s only natural to want to know what happens when the worst happens. If we ceased trading, what would happen to your assets?
Let’s find out…
A note on bankruptcy
When a company dissolves, creditors may seize their assets to recoup monies owed. In the event of bankruptcy, therefore, our assets can be used to repay our creditors (anyone we owe money to). However, this doesn’t include customers funds, whether locked in investments or held in trust with Prime Trust, our independent US custodian.
In this respect, we, our partners, and service providers have a duty to return your money if we cease trading. A third party administrator is usually appointed to oversee the settlement of outstanding debts. The administrator decides which assets we own and those we do not, and may help to return funds to their rightful owners.
We can’t say for certain what would happen to your funds if we go bankrupt. The scenario is complicated, with many variables, and with the best of intentions, we don’t want to give you the wrong impression. However, we can explain what measures we have in place to assist the return of your money should the unfortunate event take place.
Keeping track of your funds
We are in the process of building an offline transaction history for all customers. This complements the online version, which we’ll aim to maintain for at least four weeks after a theoretical bankruptcy. This transaction record, online or offline, may help return funds held in Prime Trust custody to their rightful owners.
However, if your money or assets are currently on loan in a lending pool (Flex) or supplying liquidity to an exchange (Crypto Lend), there may be a risk of loss. In any case, where funds are transferred to an external platform to earn interest or trading fees, the owner of the funds is the owner of the private key to those funds. This is an authorized person in MyConstant.
Should we go bankrupt, however, the funds may then legally belong to that authorized person. They have a duty to return those funds or assets to the rightful owners but whether they have the ability to do so is another matter. With MyConstant dissolved, the authorized person would no longer be employed. They would simply be a citizen with a private key.
Asking this individual to return funds to 1,000s of customers would be a tall order without an offline transaction record, and a challenge for someone who lacks the technology, time, or means to execute those returns. They might need to appoint a legal representative which might involve a fee ultimately passed to you out of your returned funds.
Or, they could ask the administrator to return the funds on their behalf. However, if these funds are not “legally” MyConstant’s, the administrator might be unable to do this. In this case, the person would need to appoint legal representation or some other means of returning the money if they were unable to do so themselves.
Where Prime Trust fits into the puzzle
Prime Trust is our qualified fund and digital asset custodian. We’re in the process of routing all cashflow through Prime Trust. This will make it much easier for you to reclaim your funds in the event MyConstant goes bankrupt. Why? Well, being a trust, the money is held in trust on your behalf, not ours, meaning our creditors can’t seize these assets under any circumstances.
The offline transaction record combined with Prime Trust’s own records should, in theory, be sufficient to track your funds and return them to you. This applies to repayments on outstanding loans, funds not invested in Flex, and any cryptocurrencies custodied with Prime Trust due to be returned when you repay a loan.
That said, we can’t guarantee what will happen or how long it will take or whether fees will apply. Our best guess is you’ll be able to settle this directly with Prime Trust along with an appointed administrator or legal representative acting on your behalf.
Loan Originator – a special case
All Loan Originator loans are contractual agreements between you and the Loan Originator. MyConstant acts as a bridge between you. If MyConstant went bankrupt, you would still legally be due repayments from the loan originator.
We have a process in place that appoints a third-party servicer to continue servicing your investments in conjunction with the loan originator should we cease trading. The loan originator has full records (and contracts) of your investment. At the same time, we’ll also hand over our offline investor record to the third-party servicer.
However, if a borrower defaults on a loan and the loan originator can’t honor the buy-back guarantee, your investment funds are still at risk. Assuming the borrower repays, you have a contractual agreement with the loan originator so should be able to settle the repayments between you or with the help of the appointed third party.
Want to know more?
I hope this blog has helped to reassure you, or at the very least take away some uncertainty. If you still have questions, we’ve outlined the legal implications of bankruptcy and countless other scenarios in our terms below. These are all legal statements and contracts so please forgive the legalese. If you have any questions, drop us a line on Telegram, Messenger, or email.
All investment involves risk and I hope this blog has outlined the key issues for you. If you have any questions or want to discuss any of these points in detail, please let us know. Our security and risk page also outlines all the risk management precautions we take on your behalf. Please read them.
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