> Anonymous sources who claim to have inside knowledge allege that Babel Finance has been misusing client funds via highly leveraged transactions and without permission.
(Oh, look, Tether's involved again. How much of the $160M in their claimed "shareholder capital" at https://tether.to/en/transparency has evaporated in the last month? They're currently claiming it hasn't changed by more than $50 since a month ago; https://twitter.com/jjjbtc/status/1524819806892982272)
If you need any strong suggestions that Tether's asset statements are a pack of lies, this is it. They claimed to have--before the cryptocurrency collapses started--an equity buffer of around 0.2% of total assets. Now they claim to have unwound ~10% of those positions in a market environment where selling any of those assets (even something like US treasuries!) would realize enough loss to wipe out that buffer. Instead, their equity buffer increased by something like 0.00001%.
Since a pure fraud makes up its books, it's easy to declare a steady path of returns. Reality tends to be more complicated, and delivering steady returns in a turbulent market is both hard and expensive (by way of hedging contracts).
Whilst I DO think crypto is a scam, or at best a very terrible waste of time and effort from all involved. I will accept that I could be wrong.
But, scam or not, this early turbulent history will cement a stigma of crypto being synonymous with grifters and scammers. I don't see a future in it.
It'll be interesting to see if btc breaks through the 20k barrier today and what effect that has on the hype.
Once all the dust settles down Bitcoin will keep ticking along just like it's been doing for years.
[1] Used Denari because it's an old currency I know. Of course, there's collector value, but there are other useless currencies today I've never heard of worth nothing on the collector's market too. Unfortunately, I can't cite any, given how useless they are today.
* As is, while clearly some of these failures have had a massive impact, there clearly a lot of DeFi projects of significance still standing:
Here are dominos to fall ahead of us:
- BlockFi
- Voyager
Somewhere down the line, tether is also standing. We know they're insolvent, the question is when redemptions become a problem. And at that point, the abyss
but other than that how was the play Mrs Lincoln?
* Explanation of comments meaning: https://www.urbandictionary.com/define.php?term=Other%20than...
Celsius/3AC/Babel are all not defi and we would know about their health and risk factors much sooner if they were defi.
Edit:- the cycle of upvotes and down votes on this comment hahaha....
We've had tens of thousands of competent software engineers working on this for the last 5 years and no one came up with anything more than gambling in a closed zero sum ecosystem.
From a longer-term point of view...the ways in which blockchains & crypto are going wrong look amazingly similar to things which kinda regularly went wrong, ~1.5 centuries ago, with under-regulated brick & mortar banks, securities, & such. "Backed by real gold in the vaults!" didn't mean much, when there were few checks that said gold was really there (some groups of banks had only enough gold - collectively - to pass an inspection at one of them), paper "gold-backed" notes & securities could be printed with only the backing of other such pieces of paper "backed by someone's gold, somewhere, supposedly...", etc., etc.
The basic concept was that mathematical limits made crypto fundamentally anti-inflationary: you can't debase the currency by minting more of it in response to exigent circumstances (you could wonder whether some inflation should exist to account for population growth and the demand that goes with it, but that kinda presumes universal adoption),
The problem was that while the minting of a cryptocurrency can be mathematically self-regulating, there's no barrier to just setting up more cryptocurrencies. A big reason I have not become more heavily involved/invested in crypto was that everyone I asked about the utility of having ~15,000 different virtual currencies hurriedly changed the subject. How is a rational investor supposed to choose between the proliferating altcoins and shitcoins...and why? The only honest answer I ever got was 'throw money at a bunch of cheap things and then shill the fuck out of them in the hope that they become expensive.'
Crypto just swapped inflation in the currency supply for inflation in the number of currency instruments.
> At the end of 2021, Babel Finance had an outstanding loan balance of over $3 billion, up from $2 billion the previous February. It averaged $800 million in monthly derivatives trading volume and had structured and traded over $20 billion in options products.
https://www.coindesk.com/business/2022/06/17/babel-finance-s...
The ripple effects here are going to be substantial and unpredictable. This was a toy bank/hedge fund that grew to monstrous proportions. Now that bank is experiencing a run and it has done what every bank before it facing a similar problem has done: blocked withdrawals.
Please explain to me the difference between a bank and a Ponzi Scheme.
Banks are forced to abide by regulations and laws dictating how fractional-reserve organizations are allowed to operate. In return, peoples' deposits are backed by the government up to $250k (in the US).
Ponzi schemes ignore regulations and laws, and their customers' deposits are not insured or backed by any organization.
The laws that banks are forced to follow may be woefully insufficient, but the government is incentivized to prevent serious collapses because they would be on the hook for a lot of money. Retail customers are also less likely to start a run if they trust that someone will be there ready to hand over their cash when the dust settles.
Depositors also have first claim against assets in insolvency, so even uninsured accounts will be paid back before bondholders or equity owners. Even a well-intentioned crypto security has no such strict prioritization.
Example: https://www.sec.gov/oiea/investor-alerts-bulletins/ib_banksw...
The story of the 3 little pigs comes to mind. "The first pig made his house out of straw...".
For example, with Terra the abstraction was that pegs don't work as we've seen many a time, especially when Soros broke the BoE. I took a small bath with my Terra holding and life goes on. I can do that because I didn't use leverage, I can lose everything I put into crypto, and I diversified my crypto portfolio. Moving forward I'm staying away from projects with a "stable coin" component as I don't think the fundamentals work.
If anyone has come across an analysis framework for other crypto projects please let me know.
"is crypto project?" -> "stay away"I think that the future is a probability distribution, and there is a non-zero probability that crypto doesn't die but keeps growing. Therefore, I'm not all in, but I'm not all out.
They are just traditional wall street finance pretending to be crypto, just by saying they make money in crypto space.
There's an even easier metric for measuring crypto project. The bigger and dumber the shill army the more shady the project.
Is it offering Argentina/Turkey returns? Then they're probably the Argentina and Turkey of crypto.
If they offer more than ~12.5%, run away. Avast, ye salty dogs: a piece o' eight ain't worth losing yer shirt over.
Not all stable-coins are the same. Out of all of them USDC seems to be the strongest out of the rest of them and is more likely to survive in the long term out of the others.
That does not mean you should put your whole savings into it. It is still very early for stable-coins. I would rather wait for regulatory clarity to define a set of rules that will wipe all the meme-coins, tokens, copy-paste projects and any crypto project that doesn't fit the incoming regulatory framework for crypto and only then will stable-coins like USDC will improve.
Regulations for crypto is inevitable and is only going to make some coins that are compliant stay for much longer and separate the non-compliant ones into obscurity or non-existence.
https://www.investopedia.com/terms/t/technicalbankruptcy.asp
The ones that will survive this crypto crash are probably going to be around for much longer, especially most cryptocurrency coins and blockchains (and not the ERC-20 tokens)
Definitely think that their homepage slogan needs an update after this.
The casino existed for its entire lifetime in a bull run.
No one knows how they'll survive a recession
People bought luna 2.0 within days of the collapse of luna 1.0 - check
As far as underlying value goes: one thing we've learned from the constant scamming is that a protocol designed for trustless interactions will inevitably devolve into purely adversial interactions. Consider it a social application of Gresham's law. Central banks, multinational corporations, and others who can marshal the resources to perform extensive audits will probably use smart contracts on a proof-of-stake chain for large, adversarial transactions that occur outside of any one nation's jurisdiction. Everything else will continue to be based on trust, just like it always has been.
Arbitration at the highest echelons of power is done with weapons. I don’t give a shit about what your blockchain says when I can force you to the negotiating table Commodore Perry style.
No. The crypto/scam space will be back because people love to gamble and love the concept of easy money.
> Do you think the whole space is a fad or do you think there are patches of values underneath the froth?
There is crypto/scam space and there is Bitcoin/Monero space. The actual decentralized cryptocurrencies are widely used where fiat system fails, like on DNMs.
My approach is to stay away until the fad dies, and then look to see if any part of it is useful to me. The last time I made a serious evaluation of something in that space was Bitcoin; it didn't serve any use case I had; but maybe there's been some innovation in the space that is hard to find behind the fad hype.
I think eventually bitcoin fills the same space as "no programming knowledge required coding tools". Every few years it'll spike as this time they know went wrong the last time. And then the inevitable happens.
Unless governments step in and ban them, there will always be new crypto scams.
It's notable that classical Ponzi schemes come back in the real world from time to time; they just need a very light reskin, and people buy in again. Plausible that the same happens with crypto to some extent.
Same as MLM/Hype evolved to Crypto/NFT. Some new pyramid will come in place for the next generation.
Do I hope this will be the cycle though? Oh absolutely.
Even with the market as is, today it’s still a trillion dollar industry.
History is rife with hundred-billion dollar industries destroyed in very short periods of time, across multitudes of field types.
For example, i've watched fields created by single legal opinions, grow to many billions, and then get destroyed overnight by a different legal opinion. All in the course of 10-15 years.
The amount of money in it is just not a sufficient condition for it to stick around. It certainly helps, mind you, but there will always be somewhere else to put the trillion dollars.
What’s next… Icarus Investments?
High efficiency, high energy solar solutions using phase change in solid hydrocarbons for energy capture.
No one is better off with that. At least in the runup to 2008 there was housing built speculatively, but since then there has been no productive investment at all.
There was a complete lack of any kind of policy in almost all major Western countries. Since the competitive pressure of the USSR fell away, Western politics have stagnated - keep the economy as-is, maybe lower corporate taxes and privatize government services. The only thing where a bit of progress happened in politics were social equality issues (gay marriage, access to abortions) and that's it.
But no government really thought about what digitalization would bring, how to regulate it to prevent the rise of new exploitation models (gig workers) or speculative bubbles (dotcom bubble, the current shitcoin collapse), or how the economy should transform to the new possibilities and realities.
The result is - we've seen it all - not pretty... the economy clearly wants directions from politics where it should go (particularly in the automotive industry), and a ton of money was blasted into cryptocurrencies, NFTs and other scams simply because there was no direction where money should go instead. If one wants to boil it down, I'd call it "this is what happens when the free market takes ultimate control over everything".
Since planned economy doesnt work, then clearly we shouldnt do planning of any kind at all
Centralized crypto "banking" institutions are the worst of both worlds. You are giving away your money to someone else, and there are no regulations to protect you from being screwed over by them.
With DeFi (decentralized finance) you have transparency over what the smart contract does.
(Of course you have to be careful because a lot of things claim to be decentralized but are actually centralized)
There are many people in crypto who aren't fond of companies like Coinbase or OpenSea.
The helped to make things a bit more mainstream, but they aren't paragons of decentralization.
Reality: The public trust on crypto erodes more and more when one of these companies goes down. There is no greater fool to make your hodl-ed assets valuable.
Quite the opposite actually.