I Hope You Like Mismanagement; Because, Wow…
Your 6-year-old cousin, who tried to sell water and lemon juice concentrate disguised as lemonade, could manage some of these crypto entities more responsibly.
This issue takes a microscope to some gross cases of mismanagement in the digital asset world over the last few weeks. Quite honestly, you’ll walk away from this issue convinced that your 6-year-old cousin, who tried to sell water and lemon juice concentrate disguised as a lemonade stand, could manage some of these entities more responsibly.
Including sheer negligence, unwarranted overconfidence, and brazen illegalities, we have it all for you…unless you invested in or with one of these entities…then we have nothing for you but pity.
Some highlights
3AC founders perform disappearing trick amidst liquidity crisis
The now capitulated crypto hedge fund 3AC seems to have even more disappointing news lately, with the two co-founders seemingly playing the most expensive game of hide & seek in recent history. Legal representation of the creditors stated that they could not physically locate co-founders, Zhu Su and Kyle Davis. This of course represents a unique problem, as they are scheduled to appear at a hearing at the end of July to discuss the impending liquidation. The statement even goes as far as to say that the contentious co-founders (fondly nicknamed dumb and dumber) have made effort to cooperate with the liquation process “in any meaningful manner.”
It is worthwhile to note that their cooperation includes $3.5 billion dollars in debt to 27 different companies, including $2.3 billion to digital currency lendor, Genesis Global Trading. .
For those of you who live under a rock (with today’s real estate prices, I get it), 3AC managed $10B in assets before filing for Chapter 15 bankruptcy in New York, at the start of July. This was due to a cantankerous digital asset market and catalyzed by the UST capitualiation. The founders were last “seen” during a Zoom call on how to preserve their assets. During the meeting, both founders had their cameras off and were muted (much like all of us, in every meeting). At that time, their legal counsel stated that they, “intended to cooperate.”
Dutch Central Bank playfully slaps Binance with a €3.3M fine
The Dutch Central Bank (DNB) recently, in a move that can only be described as a light slap on the wrist from the weakest toddler imaginable, hit cryptocurrency exchange Binance with a €3.3M fine. The fine is in relation to the rule the DNB has that virtual asset providers must complete registration under the Money Laundering and Terrorist Financing Prevention Act. Typically, these sorts of violations warrant a €2M fine, however, DNB felt that given Binance’s large user base in the country, the fine should be more. As well, the fine was increased due to the length of operations in the nation from May 2020 to December 2021.
Binance, of course, objected to the fine, because, how can you pick on the little guy… worth more than a few billion dollars… for not following the rules that have been laid out for years (since 2020). So unfair, right? Not to mention Binance, in operating illegally, got to avoid paying levies to the DNB and any additional costs that come with oversight. Binance currently has an application pending with the central bank that is currently pending.
Invictus makes a case for the “Worst Managed” Award; an $80M fumble
A South African crypto investment firm (yes, that is a real business model apparently) was systematically moving funds ear-marked for investments with “no anticipated downside risk” into UST. Furthermore, the firm foolishly held onto these tokens during the calamitous de-pegging that occurred, citing “pretty amazing interest” for holding these tokens at a time where even the kids you babysit would have told you to sell. The estimate is that the firm had about $22.5M tied up in UST prior to the de-pegging. Investors, during this time, took to Discord to urge the firm to sell. In a characteristically over-confident response, the firm urged investors to remain calm and told them, “we don’t see much of a risk of the peg breaking down.”
Can it get worse? Well, at around this time, 50% of the firm’s assets (and I use the term “firm” quite loosely) nominated for cold storage were discovered to be held in Celsius… yes, THAT Celsius. At the time of Celsius filing for bankruptcy, the value of the assets on the platform amounted to $17.7M. The astonishing thing about this mismanagement is that Invictus actually prides itself in giving investors little to no risk exposure. Their own white paper even says they prefer “USD equivalents with little drawdown risk.”
Shortly after all these factors were brought to light, then CEO and founder, Daniel Schwartzkopff was made to tender his resignation to the board. Largely believed to be the brains behind the firm, having created several ETF-style products leading to profits. As of late, people familiar with the matter both recognize his talents but also believe he is not fit to be CEO. The circumstances around his ousting read like a first draft of the worst spy movie script you have ever heard of, complete with allegations of trolling on Discord, being chased to his family home, and having his private accounts logged onto after he handed in his company laptop.
All in all, of the $135M of managed assets, about $80M were in either Terra or Celsius. All of that value, yes ALL of it, was either lost when Terra collapsed or is locked up by Celsius as they try to weasel their way through liquidation. Investors have not been able to withdraw funds for over a month and have been given the cold shoulder by the company. Fun stuff.
Celsius continues to go subzero, but who gets paid?
The freeze on customer account withdrawals has now eclipsed a month, a time in which the company has used to repay somewhere in the realm of $900M in debt to DeFi platforms. This naturally begs the question…who gets paid first? Like flies rushing to a fresh pile of… you know what, creditors and individuals are jockeying to be first in line to collect on the debt(s). To date, according to Bloomberg’s calculation on raw blockchain data (yes, this is as tedious as it sounds) Celsius has made repayments in the form of stablecoins to Aave, Compound, and Maker since June 12 (which marks when withdrawals were ceased). The most likely reason is due to the nature of the lending that happens on these DeFi platforms, often requiring the loanee to be overcollateralized. So, in theory, this would allow Celsius to walk away with a net gain in assets via unlocking the extra coins and reclaiming them.
Celsius, after some ludicrously risky bets in the current market, finds itself in a place where it was compelled to engage the law firm Kirkland & Ellis for restructuring advice in relation to its liabilities. Now, this would be pretty cut and dry, however, the platform (which at one point boasted over $20B in user assets) has yet to disclose current assets and liabilities. The ever increasing consensus is that Celsius is (surprise, surprise) insolvent and does not have the assets nor liquidity to meet obligations. The issue of debt repayment has an added layer of complication in the messy (or as your annoying crypto-bro/sis friend say, “decentralized and independent”) world of digital assets as one must then consider smart contract implications along with often complex and opaque contractual relationships within DeFi lending.
Now valued reader, do you find yourself having thrown your hard earned money into this proverbial black hole? If you were so bored as to have read the terms of service, you would have found that in the event of an insolvency, the treatment of your assets is “unsettled” and “not guaranteed”. Essentially, you could be treated as an unsecured creditor…which is as insecure as it sounds. In contrast, payments made to the DeFi protocols (since they were collateralized) will result in these creditors (most likely) being treated as secured creditors and getting paid first. Again, most likely.
The question must now be raised, are platforms like Celsius revolutionary? Are they a signifier of a cultural change to asset management? Or are they simply run like a high risk, unregulated hedge fund, managed by your least favorite frat boy on campus?