Will BlockFi be the next after Three Arrows Capital?

On June 17, DeFi analyst otteroooo tweeted that the digital asset mortgage lending platform BlockFi will have a 99% probability of a liquidity crisis by the end of 2022, and said that due to Celsius and Three Arrows Capital incident, it is very certain that BlockFi will suffer a surprise loss. A lot of money.

Will BlockFi be the next after Three Arrows Capital?The analyst’s reasons for this conclusion are: 1, Celsius influence; 2, Three Arrows capital incident; 3, BlockFi’s unwise bet; 4, SEC fine.

Specifically, BlockFi is the second largest holder of GBTC, and the largest holder is Three Arrows Capital. When BTC shrinks, traditional financial investors don’t know how to buy BTC… So when traditional investors buy GBTC through stockbroker FOMO, 1BTC=1.36GBTC, this is an arbitrage opportunity BTC holders can put 1 BTC in Trust and get back 1.36 GBTC shares. Since it is a trading product, the SEC is regulated by the SEC and allows BTC to be put into a trust in exchange for GBTC, but not vice versa. So the only way to get rid of GBTC is: 1. Sell GBTC to someone else now 2. Wait for the SEC to finally change its mind and make GBTC a spot ETF that allows redemption of BTC held in trust.

But the bad things don’t stop there. In February, a BlockFi subsidiary peddled cryptocurrency lending products to about 600,000 investors, drawing charges from the SEC and 32 states. BlockFi subsidiary agrees to pay $100 million in settlement. This is the largest fine ever issued by a U.S. federal regulator to an issuer of crypto-asset securities. Notably, BlockFi announced on June 15 that it was paying another $943,000 fine to the state of Iowa (as part of its $100 million settlement with the SEC and other U.S. jurisdictions), interestingly enough , BlockFi is making this small payment in installments.

Analyst otteroooo concluded: “In reality, BlockFi took a gamble and lost a gamble that they won’t experience a liquidity crisis until the SEC backs down and reverses their decision. Unfortunately for BlockFi and For its users, the liquidity crisis is caused by the LUNA/UST decoupling, Celsius liquidity issues, etc.”

To this, BlockFi CEO Zac Prince responded in a tweet saying that he has seen a lot of speculation about the risk management practices of BlockFi that I want to address. While it is BlockFi’s policy not to comment on specific counterparties, in order to provide the highest possible transparency, it is important to understand the following:

BlockFi’s risk management practices and systems allow us to act decisively in accordance with our contracts to reduce risk. These actions may include appropriate margin calls and liquidation of assets. BlockFi can confirm that we recently exercised our best business judgment on a large client that failed to meet its over-collateralized margin loan obligations. We fully accelerate loans and fully liquidate or hedge all associated collateral. No client funds were affected. We believe we were one of the first to take action with this counterparty.

BlockFi’s prudent and proactive risk management benefits its wider client base and enables it to keep its business open during times of market stress. BlockFi continues to actively provide lending and operate normally across its global suite of products and services.

As always, BlockFi will benefit as much as possible from its lending activity to retail clients. BlockFi will increase lending rates in the coming weeks, which will take effect on July 1.

BlockFi CEO Zac Prince said: “Over the past five years, BlockFi has been battle tested by various market conditions. During the current market volatility, BlockFi continues to fulfill all withdrawal requests in accordance with our terms of service. I serve our people We are incredibly proud of how our , processes and systems have performed during this time of market volatility. BlockFi is here for our clients and we are here for the long term.”

On June 13, Zac Prince stated that all BlockFi products and services continue to operate normally, including loans, interest earning, transactions, credit cards, and deposits/withdrawals. In the fall of 2021, BlockFi had 0 stETH exposure and exited its major position in GBTC.

Notably, the Financial Times reported that crypto lending platform BlockFi was one of the institutions that liquidated at least some of Three Arrows’ positions, according to people familiar with the matter. Previously, Three Arrows Capital made a strategic investment in BlockFi in 2020 and exited the following year. The people familiar with the matter also said that the liquidation of bitcoin loan positions was done by mutual consent. This also means that BlockFi reduces its risk exposure by accepting the collateral set by Three Arrows to back its borrowings.

In addition, affected by the chain reaction of the cryptocurrency ecosystem, BlockFi announced on Monday that it plans to lay off 20% of its staff in response to the economic recession.

GpuT2Xp3OdO1LypxqGBUpUdbmWbvVUE9Aq181zUO.jpegIn fact, the Three Arrows Capital incident has had a huge negative impact on the cryptocurrency industry. In addition to the suspension of user transfers and withdrawals by Celsius, Nexo, a crypto lending company, also experienced difficulties in withdrawing funds.

Ryan Selkis, founder of Messari Crypto, said this is the worst market sentiment he has seen since working in cryptocurrency. “That’s what happened in a single quarter with a recession, poor risk management, toxic loan pools, retail bank runs, VC sell-offs. Shockingly, we’re not lower. But this year shows that, What we need is regulation of exchanges and investors, not the protocol itself. 3AC, Celsius, Terra, Tether, whatever else goes wrong, is the result of regulatory *incompetence*, even if they call it a lack of jurisdiction. SEC chasing Mirror, ignoring Anchor. SEC hitting BlockFi, missing Celsius. Their crazy spot ETF policy is a big reason why 3AC could go bankrupt.”

Once successful in DeFi, and now defeated in DeFi, the crypto whales who benefit from circular arbitrage are caught in a dilemma. No matter how the three arrows end, the market panic has become a fact.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/will-blockfi-be-the-next-after-three-arrows-capital/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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