Bear Market Casualties
Bear Market Casualties
This week in crypto...something different
Broke Ape Yacht Club
1. Celsius
Last week we spoke briefly about Celsius, but as a reminder, they are a crypto lending platform designed for the regular retail investor. You deposit your crypto with Celsius and they give you a generous 10-20% APY on your assets.
Celsius takes user funds and lends them out on various DeFi protocols for a rate higher than the one they are giving you, and then they pocket the difference. When prices go up and things are rosy, this strategy works quite well. However, they recently had to halt user withdrawals, preventing anyone from withdrawing their money because they are insolvent.
The bets Celsius have taken to generate returns with user funds have not gone their way and the firm currently no longer has the money to make all of its users whole. Withdrawals are still frozen as the firm has asked for more time to recoup its losses.
2. Three Arrows Capital (3AC)
3AC are a crypto trading and Venture Capital firm founded by high school friends Kyle Davies and Su Zhu. Prior to crypto, 3AC made money trading foreign exchange but quickly grew to become one of the crypto industry’s largest and most influential firms.
The firm’s founders have a large online following and were not only thought leaders but had made some incredibly successful bets in the space to a point where they had $20 Billion in assets under management (AUM).
3AC are a victim of the Luna debacle, having purchased over $500 million worth of locked Luna back before the crash just over a month ago. That $500m is worth approximately $600 today.
You’re probably wondering why they didn’t sell early on when things were falling, the issue with 3AC is a lot of the investments they made were locked, just like the LUNA in this case. This means, in recent conditions the firm is incredibly illiquid. To add to this, being a trading firm, they often take out loans from exchanges and liquidity providers. In crypto, you need to put up collateral (usually a form of crypto) to secure loans…well when the value of the collateral falls to a certain level, you get a margin call or get liquidated. Exchanges like BitMEX, FTX and Derebit have all claimed to have liquidated 3AC’s positions
The firm’s founders are said to be avoiding the calls of creditors and even members of their own staff.
3. Babel Finance
Babel Finance is a Hong Kong-based crypto lender, they lend out crypto to other institutions and take a cut from those doing the borrowing. This week they announced they would be halting withdrawals and redemptions, citing volatile market conditions. We heard the same before with Celsius.
Babel’s business model, however, is a little different and relies on the price of Bitcoin going up (which hasn’t been happening). When someone borrows from Babel, and gives them that collateral, they use leverage on the money they receive as collateral and lend that higher leveraged amount elsewhere, earning more money than if they used no leverage. When you increase leverage, and price moves against you, the price at which you get liquidated or a margin call, moves closer. As we’ve mentioned, prices haven’t been going up and this has been bad news for Babel.
4. Broke Apes Yacht Club
The floor price for a Bored Ape is now 85ETH which, at current prices is around $98,000 USD. Not long ago, the lowest price for an Ape was $450,000 USD at a floor price of over 100 ETH.
5. BlockFi
BlockFi is similar to Celsius, they offer borrowing and lending services to retail clients but also have a big institutional focus. Earlier in the year, BlockFi settled with the SEC (Securities Exchange Comission) in the US for $100 Million USD over allegedly violating securities laws (i.e offering security products to US users without being regulated to do so).
BlockFi and their dealings with large institutional clients may have left them exposed to clients like 3AC, so there are rumours floating around that they too may be in trouble. The BlockFi CEO announced last week they had to liquidate a large client that failed to meet their credit obligations.
It was announced today that the firm would be receiving a $250 million loan from the crypto exchange FTX to “bolster our balance sheet and platform strength.”
This likely points to BlockFi being in trouble and FTX stepping in to rescue them, while also believing in BlockFi’s ability to prosper in the future.
Other headlines
Voyager's exposure to 3AC consists of 15,250 BTC and $350 million USDC, 3AC has not repaid the requested amounts.
Burberry drops NFT collection
Federal Reserve Chair Jerome Powell says the central bank will keep raising interest rates to tame inflation
Tesla CEO Elon Musk accused of dogecoin Ponzi scheme in new class-action lawsuit