Bankruptcies Boost Analytics Startups—For Now; Sequoia’s Black Eye

By: Aidan Ryan
From: The Information

The FTX collapse has left many customers in limbo, with billions of dollars stuck on the bankrupt exchange. And contagion has been spreading to firms including BlockFi and Genesis, as I mapped out last week.

But high-profile implosions have been good for business in one corner of the crypto world: The analytics firms that are helping bankrupt companies track down digital assets and aiding government agencies in mapping out the damage.

That includes companies like Chainalysis, the blockchain analytics startup last valued at $8.6 billion that’s been working with FTX’s new executive team during the exchange’s bankruptcy proceedings. Elementus, another blockchain analytics company, has been helping creditors in the Celsius bankruptcy case. And Inca Digital, a startup that analyzes blockchain and other data to track crypto financials, is fielding requests from long-term clients like the Commodity Futures Trading Commission to track down funds and map out ties between crypto firms, CEO Adam Zarazinski told The Information.

“There is a big mess here on-chain and everybody is trying to sort it out and understand what happened and what’s likely to happen next,” said Max Galka, founder and CEO of Elementus.

Bankruptcies aside, analytics firms have long touted their businesses as relatively stable because they aren’t directly impacted by the rise and fall of crypto prices.

“We’re not tied to the price of crypto, we’re not tied to customer volumes,” Galka said. “We’re just an old fashioned ‘picks and shovels’ business and one that can serve a lot of different use cases.” Elementus, for example, also offers market intelligence and helps exchanges with compliance.

To be sure, analytics firms have not been entirely unscathed by the FTX implosion—the exchange was a big customer for some even before things went off the rails, likely leaving a trail of unpaid bills for prior work. Chainalysis said it was a creditor in the FTX case, and Inca Digital counted FTX as one of its customers.

“FTX was a client of ours and we thought they were doing a lot of good things,” said Zarazinski. “This is the wake up call that a lot of financial institutions needed to take risk management in crypto more seriously.”

And in the long run, these analytics firms have a vested interest in ensuring that the crypto industry is here to stay for years to come.

“Long-term, Chainalysis is successful if the cryptocurrency industry is successful. Our mission is to build trust in blockchains—we work to promote consumer access to cryptocurrencies safely,” a Chainalysis spokesperson said via email.

The Latest From FTX

The FTX fiasco is keeping lawyers plenty busy, too. And judging by commentary at FTX’s first day hearing on Tuesday, even bankruptcy veterans are girding themselves for a wild ride.

“We are here on an unprecedented matter,” said James Bromley, a partner at law firm Sullivan & Cromwell who is representing FTX. He added that the delayed timing of the hearing, which is meant to lay out next steps and usually comes right as a company first files for bankruptcy, “in and of itself is uncommon.”

A “substantial amount of assets have either been stolen or are missing” from FTX, Bromley told the court, and FTX employees under its new CEO, John J. Ray III, were working “day and night” to locate them. The exchange has also been facing cyber attacks and is working to protect the assets it does have, Bromley said.

“What we have here is a worldwide, international organization but which was run as a personal fiefdom of Sam Bankman-Fried,” Bromley said.

Bromley said that asset sales and offloading or restructuring businesses were “all on the table” to help finance the bankruptcy and the company’s operations. That includes venture investments made by FTX Ventures.

If there’s any single takeaway from the hearing, it’s that this is a messy challenge for the current FTX team and the court. As Bromley noted: “Unprecedented is the word of the day.”


“I can’t point to other brand-name institutional firms that have delivered this amount of money to one company with this lack of governance and level of this disaster, but it’s possible there are others,” NFX general partner Pete Flint told The Information about Sequoia’s FTX investment. “It does feel like this is a black eye for Sand Hill Road. But I hope it’s an isolated incident.”

Cory, Kate and Maria took a look at how Sequoia Capital’s $214 million funding into FTX has tarnished the reputation of the prominent Sand Hill Road venture capital firm and its partner, Alfred Lin. Sequoia partners including Lin apologized to limited partners for the FTX investment on Tuesday.