All Been Crypto — Week 8 July 2022

We are back! Above 1tn at least for now it seems, after a week of price stability touching the upper end of our trending range. With most assets in green across the board and distressed stETH and cETH among the big winners >20% post the successful Sepolia Testnet merge. Balances on exchanges continue to grind lower suggesting lower selling pressure. In the news we had of course more around bankruptcies and bailouts, a few more interesting votes at MakerDAO expanding into real world assets and some new ugly accusations emerging at Celsius. On the innovation side it’s interesting to see Polygon also revealed a Web3 phone, and on adoption Reddit is said to launch an NFT pfp market place. Enjoy reading!

Bat Tai Chi — btc21@mail.com

HEADLINES:

Bailouts and Insolvency updates

Unfortunately will have to keep this headline for a couple of more weeks as it seems we are not out of the woods yet. While prices have stabilized at these levels we continue to see the aftermath of the liquidity crunch unfolding. This week Vauld and Coinloan are amongst the latest that had to announce de facto insolvency. Voyager had to file for bankruptcy which revealed some very interesting information on their counterparties. Like the fact that it’s mostly retail holding the bag 97% of customers have less than 10k USD in their account, and that Alameda was the second biggest borrower with >370mm outstanding (just after 3AV ~650mm). It is now a bit more understandable why they (Sam and Alameda) were so quick giving them a 500mm credit line which we now know wasn’t enough and looks like they only took down 75mm of that. The other issue here on Voyager is now an investigation on how they marketed themselves as FDIC protected. Which looks like they are not really. Maybe that’s why SBF is also distancing himself despite being the largest shareholder (11%). There’s more juicy stories coming out with Celcius too. Just when you thought things seem to go ‘orderly’ as they managed to move around liquidity and repaid their full MakerDAO loan and moved the 24k wBTC to FTX. Well former asset manager for Celsius filed a lawsuit accusing them of fraud and market manipulation. Jason Stone the founder and CEO of KeyFi, which was partly acquired by Celsius said Celsius had lied to them. They had not been hedging activities, nor had they been hedging the fluctuations in cryptoasset prices. The entire company’s portfolio had naked exposure to the market. Looking over at BlockFi this week also trying to calm retail investors by sending out an email where they stated they have honored all withdrawals so far and some transparency on their holdings (50% of client funds in short-term positions with 10% in collateral).Nexo actually signed a Term Sheet with Vauld to potentially acquire their assets. Watching the space closely

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Argentina Stable Coin Surged

Following the surprise resignation of Economy Minister, Martin Guzman last weekend price for stable coins valued in Argentinian Pesos surged temporarily to >10%. Argentina has been plagued by extremely high inflation for years and it is therefore no wonder that crypto adoption is amongst the highest in the world there. Capital controls restrict the amount of USD that every citizen can exchange for Pesos and so stable coins are the best way to flight to safety. It is notable also that about 2 months ago two of the major banks were trying to enter crypto only to receive a slap on the wrist from the central bank. The strict stance from the authorities on crypto most likely got to do with the conditions of the IMF loan that requires a strict clampdown on crypto. With a new finance minister that might change now as well.

How one PDF was the root of the biggest crypto hack

The Ronin Network hack earlier this year was the biggest crypto hack ever. I’ve talked about it in my previous weekly and we now seem to have gotten more details. Reportedly the root of the whole hack was a fake job add that lured one of the senior developers into downloading a compromised PDF allowing spyware to infiltrate Ronin’s systems. From there, hackers were able to attack and take over four out of nine validators on the Ronin network — and they only needed 5 to successfully raid the bridge. We then learned that they however were also able to use the Axie DAO who had previously allowlisted Sky Mavis to sing various transactions in order to help dealing with heavy transaction load. Crazy to hear the whole story now how one single point of failure from one engineer downloading a simple PDF has lead to the largest hacks in crypto history. Of course we know it was a lack of decentralization but the scale is still mind blowing.

QUOTES:

Smart contracts have a higher liquidation preference than any paper agreement. DeFi protects you from Celsius

Leighton Cusack, the co-founder of PoolTogether

But in late Feb 2021, we discovered Celsius had lied to us. They had not been hedging our activities, nor had they been hedging the fluctuations in cryptoasset prices. The entire company’s portfolio had naked exposure to the market.

Jason Stone, CEO of KeyFi

The visionary person naturally perceives value in Bitcoin when realizing that anyone’s bank account can be shut down.
The adaptive person begrudgingly perceives value in Bitcoin when his own bank account is shut down.

And then there’s PeterSchiff

Erik Voorhees, Founder of ShapeShift