Web3 startup LayerZero Labs fighting $21.3-million lawsuit from FTX

LayerZero Labs logo - white on black
Bankrupt crypto exchange suing LayerZero over alleged fraudulent transfers.

The CEO and co-founder of Vancouver-based Web3 startup LayerZero Labs is vigorously defending the startup against a lawsuit FTX has filed against LayerZero.

“Regarding the FTX suit, the entire suit is filled with unsubstantiated claims,” Bryan Pellegrino wrote on X, the platform formerly known as Twitter.

“Regarding the FTX suit, the entire suit is filled with unsubstantiated claims.”
Bryan Pellegrino, LayerZero CEO

“We have been in communication with the FTX liquidators for almost a year now and have time and time again attempted to proactively address the issue of ownership of the shares with them and have been ignored for the entire time,” Pellegrino wrote.

When asked about a statement of defence in the lawsuit, LayerZero directed BetaKit to the statements on X.

The case in question revolves around bankrupt crypto exchange FTX suing LayerZero Labs to try and recover more than $21.3 million in cryptocurrency deposits made in 2022. The withdrawal took place in the 90 days leading up to FTX’s declaration of bankruptcy and was first reported in Unchained.

Now, according to the crypto news website Unchained, FTX is seeking to cancel the agreement and additionally has filed a claim against LayerZero for certain withdrawals it made during the 90-day period leading up to its bankruptcy.

LayerZero allegedly withdrew large sums of the cryptocurrency coins and tokens APT, AVAX, BNB, BUSD, FTM, MATIC, USDC and USDT from FTX. FTX also seeks to recover $13.07 million from LayerZero’s former chief operating officer Ari Litan, and $6.65 million from a subsidiary, Skip & Goose, according to court documents and reports.

FTX alleges four counts of fraudulent transfers, four counts of preferential transfers, one count of disallowance of claims and one count of property recovery against LayerZero.

None of the allegations have been proven in court.

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In his statement on X, Pellegrino said nothing could be read into the withdrawal leading up to the FTX bankruptcy. He claimed that LayerZero had as much as $100 million tied up when Silicon Valley Bank went under, and that LayerZero withdrew the funds the day before the deposits were locked.

“Anybody who has been involved in this space for a long enough time knows that there is never any amount of tail risk worth inheriting for a largely fungible experience,” Pellegrino wrote. “Exchanges are (mostly) the same, banks are (mostly) the same, when there is rumour or smoke you exhibit caution until it’s resolved. In no way did we know if FTX was insolvent at the time.”

LayerZero Labs asserted a valuation of $3 billion in April after closing a $120 million Series B funding round.

LayerZero said 33 investors participated in the financing, including Andreessen Horowitz’s crypto fund a16z, BOND, Christie’s, Circle Ventures, OpenSea Ventures, Samsung Next, and Sequoia Capital.

LayerZero previously had a valuation of $1 billion when it raised $135 million in March 2022. That round saw participation from notable firms in both the FinTech and crypto spaces, such as Dapper Labs, Coinbase Ventures, PayPal Ventures, as well as FTX Ventures, the fund launched by collapsed crypto exchange FTX.

Back over on X, Pellegrino wrote of the ongoing legal dispute: “It’s disappointing to see the estate resort to mudslinging, we look forward to settling the issue in court.”

Image courtesy of LayerZero

Charles Mandel

Charles Mandel

Charles Mandel's reporting and writing on technology has appeared in Wired.com, Canadian Business, Report on Business Magazine, Canada's National Observer, The Globe and Mail, and the National Post, among many others. He lives off-grid in Nova Scotia.

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