Posts

Where has all the money gone?

Image
The collapse of Terra in May sent shock waves round the crypto world, triggering domino-like collapses of crypto companies. One of those companies was the investment fund Three Arrows Capital. At the time, everyone thought 3AC was a conservatively-managed investment company that was simply the unfortunate victim of an unforeseen event. If anyone was to blame for 3AC's collapse, it was Do Kwon.   How wrong they were. Since 3AC was ordered into liquidation by a British Virgin Islands court, more  and more creditors have emerged from the woodwork claiming they are owed money. The liquidators have filed emergency motions to freeze 3AC's assets because there is evidence that funds are being moved out of reach. And 3AC's co-founders, Su Zhu and Kyle Davies, have done a runner, though Bloomberg says they are planning to set up shop in Dubai.  The liquidators applied to the Singapore High Court to have the BVI liquidation order recognised in Singapore. This would give them access t

Why Celsius Network's depositors won't get their money back

Image
The crypto lender Celsius has filed for Chapter 11 bankruptcy. This should come as a surprise to absolutely no-one, though the grief and pain on Twitter and Reddit suggests that quite a few "Celsians" didn't want to believe what was staring them in the face. Celsius suspended withdrawals nearly a month ago. So far, every crypto lender that has suspended withdrawals has turned out to be insolvent. There was no reason to suppose that Celsius would be different.   Celsius's bankruptcy filing says the company has assets of $1 - 10 bn and a similar quantity of liabilities:  This doesn't tell us much about the extent of the company's insolvency. But rumours have been circulating of a $2bn hole in its balance sheet. In May,  according to Coindesk , the company said it had $12bn of what Celsius calls "customer assets" and Coindesk calls "assets under management", and $8bn lent out to clients. So "assets under management" seem to have fal

Shipwrecked

Image
Two days after I published my last post , the ship went down. Voyager Digital filed for Chapter 11 bankruptcy protection .  The bankruptcy filing revealed the extent of its indebtedness. Tragically, most of its creditors are customers, some of whom hold claims worth millions of dollars. But its largest creditor is Alameda Research, to whom it owes $75m. This is the maximum that Voyager could draw down from Alameda's credit line in a 30-day period. So it appears that Alameda did not pull its credit line as I thought. Rather, Voyager maxed it out - but still ran out of money. Voyager's desperate shortage of cash is the proximate reason for its bankruptcy.  But for its customers, the hole in its balance sheet is the bigger problem. Voyager admits that it cannot repay all, or even most, deposits in full. Its press release outlines a resolution plan that distinguishes between two classes of depositor (click image for a larger view) : US dollar deposits on Voyager don't earn int

The sinking of Voyager

Image
Friday was quite a day. The crypto lender BlockFi provisionally agreed a bailout deal with FTX . The hedge fund Three Arrows Capital (3AC), already in compulsory liquidation in its home territory the British Virgin Islands, filed for Chapter 15 bankruptcy protection in the United States. And the crypto broker Voyager suspended trading and withdrawals .  Voyager's press release revealed a massive hole in its balance sheet. Some 58% of its loan book consists of loans to 3AC: And its loan book is nearly 50% of total assets: So approximately 28% of Voyager's assets are in default. And since 3AC now has creditor protection, Voyager must wait for bankruptcy courts to decide how much, if anything, can be recovered. That will take months.  But the balance sheet hole doesn't explain why Voyager has suspended US dollar withdrawals. Despite its apparently healthy "cash held for customers" balance, it seems to be dreadfully short of cash. There is something else going on he

There's no such thing as a safe stablecoin

Image
 Stablecoins aren't stable. So-called algorithmic stablecoins crash and burn when people behave in ways the algorithm didn't expect. And reserved stablecoins fall off their pegs - in either direction. A stablecoin that does not stay on its peg is unstable. Not one of the stablecoins currently in circulation lives up to its name.  Don't believe me? Well, here's the evidence. Exhibit 1, USDT since the end of April: Exhibit 2, USDC over the same time period: (charts from Coinmarketcap) Both coins de-pegged on 12th May. Neither has returned to par. Stable, they are not.  And no, USDC is not "more stable" than USDT. A stablecoin that can't hold its peg when everyone is piling into it is no more stable than one that can't hold its peg when everyone is selling it. Indeed, since stablecoins can be created without limit, there is arguably much less excuse for a stablecoin de-pegging on the upside. Stablecoin issuers can run out of reserves, but they can't r

The Great Unemployment Fudge

Image
In the U.S., we are told, the post-World War II period was a golden age of full employment. High wartime government spending had brought to an end the double-digit unemployment and misery of the Depression, and as war gave way to peace, unemployment settled at a non-inflationary level of 3-5%. It's known as the post-war "economic miracle". But it's a myth. There was never full employment. The low unemployment of the post-war years is a massive statistical fudge. In fact, over five million people lost their jobs immediately after the end of the war, most of whom never worked again. But they were never listed as unemployed - because they were women.  The Great Unemployment Fudge started in the "Depression of 1946", described by the Cato Institute as "one of the most widely predicted events that never happened in American history". During the war, there was full employment, GDP was roaring and industrial production was at an all-time high. But much o