Public offer for the conversion and rescheduling of customer receivables from Inlock Services UAB (Laisvės pr. 60, Vilnius 05120, Lithuania, code: 306036522), hereinafter referred to as UAB/Service Provider, subject to conditions. The purpose of the offer is to enable UAB to provide better terms than the expected settlement of outstanding customer claims (partial settlement of claims based on the related legal proceedings), which terms allow for a 100% asset payout for certain assets, which is paid in the specific asset rather than on the basis of a dollar-based conversion or asset value.

Terms used and their explanation

  • Damage event: in order to protect customer assets, Inlock suspended certain services on 14 November 2022 due to a damage event, during which a part of the customer assets under management became inaccessible to the platform due to the fault of one of its service partner. Legal proceedings are currently underway between the legal entity operating Inlock (UAB) and the partner who caused the damage to settle the claim.
  • Damage event date: 14 November 2022.
  • Bankruptcy of FTX crypto exchange: on 11 November 2022, the FTX crypto exchange filed for bankruptcy after failing to pay tens of billions of dollars in customer receivables owed to its clients. Inlock’s counterparty to the claim held the assets on the FTX exchange at the time of the claim, and the direct cause of the claim was the collapse of the FTX crypto exchange.
  • Asset: Cryptoassets stored on the Inlock platform that were affected by the suspension of services on the platform on 14 November 2022 and have not since been removed from the suspension of services by customers by other means (e.g. exit payout, completed migration on the vigiler platform).
  • Asset claim: See ‘Asset’. Assets retained in their original form, access to which was partially or fully suspended at the time of the Event of Loss and which have not since been otherwise released by customers or converted into other debts outside the scope of the Event of Loss. Compensation balances, assets paid out under an exit or early payout program, or assets for which the Inlock platform has provided a payout or conversion at 100% asset value are not considered outstanding asset claims.
  • Customer claim: the sum of asset claims on a customer.
  • Asset value: the current exchange rate of an asset, to which the Inlock and Vigiler platforms typically apply the current exchange rate against the Binance exchange’s USDC or USDT pairs.
  • Asset value at the time of the Damage Event Date: Current exchange rates at the time of the Event of Loss: BTC: 16905.06 USDC, ETH: 1256.83 USDC, LTC: 57.34 USDC, USDC: 1 USDC, USDT: 1 USDC, BNB: 280.1 USDC, LINK: 6.278 USDC, ADA: 0.3323 USDC, SOL: 14.11 USDC 
  • Aggregate value of assets outstanding at the time of the Damage Event Data: the sum of the number of Customer Claims multiplied by the value of assets at the time of the Damage Event Date. Unit of account: USD

Background

On 14 November 2022, the Inlock platform suspended its services due to a major incident that rendered some of the assets held on the platform by its customers inaccessible. The incident was indirectly linked to the bankruptcy of the FTX crypto exchange through an OTC counterparty (the “Intermediary”). The Intermediary acknowledged that the failure of the FTX crypto exchange would prevent it from fulfilling its obligations to the Service Provider (UAB).

On December 31, 2022, the Service Provider (UAB) issued the Recovery and Restructuring Plan for the Inlock platform, which was designed to enable the Service Provider (UAB) to start opening suspended services and releasing managed assets as soon as possible, regardless of the related legal proceedings and in the event of any unfavourable outcome. As set out in the document, customers were given a choice of different claims settlement alternatives.

Under the legal proceedings between the Service Provider (UAB) and the intermediary, the Service Provider (UAB) may expect to be indemnified to the extent that FTX pays compensation. The basis for the settlement of claims in the bankruptcy proceedings of FTX is the value of the assets at the time of the claim. In the Recovery and Restructuring Plan issued by the Operator (UAB), it has undertaken to provide its customers with the highest compensation that is realistically achievable. At present, we have two groups of customers with still active claims for whom 100% recovery cannot be achieved due to the claims settlement process used by FTX. This group includes customers who have opted for the “Scheduled Release” program or who have migrated to the reboot platform but will not complete their migration until the claims are settled.

The FTX claimants were required to vote on the acceptance of the claims settlement process in proportion to the value of their assets at the time of the claim between 25 June 2024 and 16 August 2024. According to a notice issued by FTX on August 21, 2024, more than 95% of the claimants voted in favour of the claims resolution process developed by the commissioner. The Service Providers (UAB) have not been able to object to the claims settlement process on the merits. For this reason, the Service Provider (UAB) has been forced to adapt to the FTX claims settlement process and has developed its policy for customers negatively affected by this method of claims settlement.

According to our latest information, payments are expected to start on October 31, 2024 and the so-called Class 7A (Dotcom Convenience Claims) claims will be paid within 60 days. The customer claim indirectly owed to the Inlock platform, however, is classified as Class 5A (Dotcom Customer Entitlement Claims) due to its volume, which is currently known only in that payments will be made in several phases in line with the maturity of the related government bonds. No precise timetable has been released by the bankruptcy institution at this stage, but the overall process could take several years.

The members of the affected customer groups who are most negatively affected by FTX’s settlement method are those who held volatile crypto assets (BTC, ETH, SOL) on the Inlock platform at the time of the loss event, as these assets have experienced multiple price increases since the loss event. According to our current information, the FTX claim settlement is expected to start before the end of 2024, but the exact timing and timing of the settlement is not yet known. Therefore, we cannot say at this stage to what extent our clients with volatile crypto assets may be negatively affected by the settlement, as the current price of the assets is an important factor in determining this.

However, to calculate this, we have already prepared a calculation procedure, which we shared on the Inlock blog on 14 July 2024 under the title “The process of compensation in the case of partial compensation“. Based on the example in the calculation procedure, it is easy to calculate that if the client suffered damage exclusively in volatile crypto assets and all the parameters in the example remain the same, the compensation rate is expected to be around 88% at current exchange rates. Therefore, for this client base, the Scheduled Release Programme is expected to end with a loss write-off of around 12%. Based on the same principle applied in a similar way, the same will be true for customer claims remaining in a pending migration status on the Vigiler platform.

Purpose of current offer

The Service Provider (UAB) wishes to offer its customers who have been forced to write-off their losses as a result of a partial settlement the opportunity to remove their assets from the settlement process from FTX and convert their claim into a debt where the Service Provider (UAB) will ensure payment of 100% of the assets (in-kind) through its previously applied business process. Claims from customers who accept this offer will be removed from Inlock’s claims settlement process and will be blocked for a specified period of time. After which time they will be released and made available.

The duration of the lockout will depend on the type of asset and the type of damage settlement process the customer has chosen from the Inlock Recovery and Restructuring Plan. Accordingly:

  • Scheduled release program for BTC assets: 4 years
  • Scheduled release program for ETH assets: 6 years
  • Scheduled release program for SOL assets: 2.5 years
  • Pending migration to reboot platform program in case of BTC assets: 2.5 years
  • Pending migration to reboot platform program in case of ETH assets: 3.5 years
  • Pending migration to reboot platform program in case of SOL assets: 1.5 years

For customers who opt for the Pending Migration to Reboot platform, the foreclosure process is faster because more than 44% of the assets affected by the claim have already been paid out to customers in the Scheduled Release program without a loss deduction.

Assets other than SOL, ETH and BTC are not covered by this offer. If additional assets other than the three indicated assets are mixed in the customer account, those assets will remain unchanged in the customer account and will be settled according to the Inlock Recovery and Restructuring Plan.

Please note that if you have other volatile assets and USDC stablecoins in your account in Pending Migration status, in addition to the assets covered by this offer, as a result of accepting this offer, the locked assets will be removed from the account for the duration of the contract. This could easily lead to a situation where the migration process on your account is automatically terminated. The customer should assess the impact of this in advance and make their decision on this basis.

Amennyiben az ügyfél rendelkezik mind SOL, mind BTC és/vagy ETH eszközökkel, akkor eldöntheti, hogy mindhárom eszközzel, vagy közülük melyik eszközökkel kíván élni jelen ajánlattal. A kiválasztott eszköz vagy eszközök kapcsán nincs lehetőség megbontani a nyilvántartott eszközt. Tehát nincs arra lehetőség, hogy például az adott eszköz 50%-a esetén szeretne élni jelen ajánlattal.

If the offer is accepted, a contract will be concluded on the fact of the conversion and its conditions. The assets concerned will be immediately removed from the Inlock or Vigiler platform. The devices will then be kept by the Service Provider (UAB) exclusively within the framework of the contract concluded, and no other online access will be granted to the assets, as they will be permanently locked until the end of the contract. If no other assets remain on the account of the customer who has accepted the offer after the withdrawal, the platform is entitled to terminate the account of the customer concerned. If other assets remain, they will continue to be settled under the conditions described.

The Service Provider (UAB) is free to use the converted and locked assets as liquidity providing in the course of its business practice, ensuring full (100%) coverage from the profits generated by this activity. The client accepting this offer is not entitled to claim any collateral or deposit during the term of the contract, as it has also secured its assets on the Inlock platform without collateral. Furthermore, the client is not entitled to request a partial payout before the expiry of the contract, but has the option to terminate the contract early (before each contract anniversary). In this case, the client is also entitled to the excess coverage generated until then on a pro rata basis.

The customer accepting the offer fully accepts that the Service Provider (UAB) will endeavour to achieve the full level of cover on the basis of the same business practices under which it operated until the occurrence of the claim. More information on this can be found in the Terms of Use accepted by the customer when registering for the Inlock platform.

The customer accepting the offer fully agrees that no other fees or interest will be charged or other costs will be passed on to the Service Provider (UAB) beyond the increase in cover arising from the contract. The Service Provider (UAB) undertakes not to charge any other issuing, brokerage or disbursement fees or other costs to the customer within the framework of this offer.

The sole purpose of the contracts to be entered into is to ensure that the Service Provider (UAB), using its existing business practices, achieves a 100% margin level on the client’s BTC, ETH and/or SOL assets and pays the client. At the latest at the expiry of the contract or upon early termination initiated by the client, the Service Provider (UAB) shall make available the locked assets at the coverage level that the contract requires on a pro rata basis.

Timetable for the offer

The Service Provider (UAB) will issue this offer on 2 September 2024, which will be published on its website (inlock.io). In addition, it will send regular email notifications to customers with BTC, ETH and/or SOL balances of at least $1000 and who are involved in the two programs described above (Inlock Scheduled Release and Pending Migration to the reboot (Vigiler) platform).

In addition to email and online communication/posting, the Service Provider (UAB) will also endeavour to inform its customers of the offer through other channels.

Customers have until 26 September 2024 at the latest to decide whether to accept the offer, which will be done by signing the corresponding contract. If the offer is accepted, the Inlock Restoration and Restructuring Plan will be immediately suspended for the affected devices and a permanent blocking of the devices will be initiated, during which they will be withdrawn from Inlock or Vigiler customer accounts.

As the client is aware of the process and the calculation forms of the final settlement related to Inlock’s Restoration and Restructuring Plan at the same time as they are made aware of this offer, the client has the opportunity to fully consider and compare the options available to them. In the future, the Service Provider (UAB) will treat customers who do not accept this offer by 26 September 2024 as having a preference for the claims settlement process selected in the remediation process at their own discretion.

This offer expires on 26 September 2024, after which customers may not exercise the options described in the offer.

The Service Provider (UAB) will provide the possibility to accept or reject the offer in an email message received by the customers concerned.