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Does SBF Own Everything Now?

3AC Meltdown Continues | Grayscale Sues the SEC | Big Maker Vote I Arbitrum Paused
Donovan Choy Donovan Choy Jul 2, 20224 min read

Dear Bankless nation,

Here’s a recap of all crypto news for the last week of June, 2022

Three Arrows Capital Contagion, Act III

The dominoes continue to fall from 3AC’s collapse.

The fund was ordered into liquidation by a British Virgin Island court after failure to repay debts.

Singapore’s central bank MAS — where 3AC was previously headquartered — then stated that the fund willfully submitted false information on its balance sheets, and exceeded its allowed assets under management for several months.

The collateral damage from 3AC’s implosion has spilled over into other crypto companies, namely Voyager Digital and BlockFi.

Last week, Voyager halted withdrawals on its platform. This week saw Voyager issuing 3AC a default notice after the latter failed to make payments on a $670M loan.

Meanwhile, SBF’s Alameda Ventures stepped in with a $500M loan package to save Voyager, of which $75M has already been accessed. VOYG shares have taken a hit of ~60% in the past two weeks after news of its exposure to 3AC broke.

BlockFi’s troubles include an overcollaterized loan of $1B to 3AC, which was liquidated early on in the domino charge. In a public message released today, BlockFi reported a loss of ~$80M in the past month’s events, as well as a credit line of $400M from FTX (also an SBF joint) which to-date has not yet been drawn on.

Both FTX and Morgan Creek Digital are competing to acquire BlockFi, as BlockFi continues to pursue a public offering.

How 3AC ended up in this mess is beyond the scope of this newsletter, but it’s a heady brew of bad investment decisions and poor risk management involving overleveraged loans from other institutions and DeFi protocol treasuries.

With FTX and Alameda scooping up the rubble from the fallout across the contagion, this looks like an effective power play by The SBF.

Catch Ryan and David on this week’s Bankless rollup for the full details.

Grayscale sues the SEC

Grayscale Investments’ application to convert its GBTC asset into a spot-based Bitcoin ETF saw rejection by the SEC this week.

Now Grayscale is taking the SEC to court.

The official press release charges that:

“... the SEC is failing to apply consistent treatment to similar investment vehicles, and is therefore acting arbitrarily and capriciously in violation of the Administrative Procedure Act and Securities Exchange Act of 1934”.

As it stands, the Grayscale GBTC financial product is a trust that enables investors to gain exposure to Bitcoin without buying it directly (with an initial lockup period of six months).

Why buy GBTC at all when you can buy BTC directly? Because it’s a legal way for mainstream investors to gain exposure to crypto.

But it’s also terribly market-inefficient. In theory, GBTC is meant to mirror Bitcoin in value. In reality it trades at a premium or discount depending on market sentiment. This opens an arbitrage opportunity that transforms GBTC from a “Buy this if you like Bitcoin” financial product into a hybrid speculative futures-based product.

That lured institutions like 3AC into scooping huge stakes in GBTC when numbers were going up, and we’ve seen how that ended up.

Of course, modern finance has an easy fix to this like: an ETF which trades at a 1:1 parity with the underlying asset.

But access to crypto ETFs are still blocked up as the SEC continues to drag its feet on regulatory approvals. But that’s not stopping institutions from pursuing the license, as VanEck files another application this week.

DeFi DAO governance dynamism

Two big DAO governance items dominated this week. The first was a contentious Maker DAO proposal to centralize the protocol’s governance in a “core unit.” It failed to pass. The proposal saw an unprecedented ~30% of MKR tokens participating.

The second big governance proposal is a Lido initiative to self-limit the amount of ETH deposits into the liquid staking protocol. The context of this proposal lies in the potential risks that a concentration of ETH in Lido might pose to the underlying Ethereum protocol.

It’s hardly a surprise that the proposal was overwhelmingly shot down by LDO holders - that’s a little bit like asking an investor if you’d like to see a company you own a part of to stop growing.

💭 Hasu enters the Maker and Lido governance conversations with moderate suggestions for both.

Web3 News Roundup

Arbitrum Odyssey paused, Optimism numbers go up

The Arbitrum Odyssey campaign was paused this week due to blockchain congestion from the overwhelming success of Odyssey.

Meanwhile, Arbitrum’s closest L2 competitor Optimism is also booming, with a big uptick in DEX trading volume.

We’ve been huge on Ethereum L2s for a long time, so this doesn’t come as a particular shocker. Still, it’s nice to see the L2 Summer 🌻 thesis get vindicated as crypto winter draws near.

Horizon bridge gets hacked

The Horizon bridge by L1 blockchain Harmony endured a $100M exploit this week, allegedly by the North-Korean hackers Lazarus Group. Those are the same guys that hit the Axie Infinity Ronin bridge in March.

Microstrategy goes Bitcoin shopping

Microstrategy is a small software company, but it has come a long way from doing small software things. CEO Michael Saylor shut down market rumors of any potential insolvency in perhaps the most demonstrative way possible: a $10M purchase of another 480 Bitcoins.

El Salvador too checks out another purchase of 80 Bitcoin.

Bankless July Token Report

Finally, the Bankless July Token report dropped this week for premium subscribers. Ben reviews ATOM, SOL, AVAX, PERP, TRIBE, and SUSHI 👀


Here’s what we have lined up next week:

  1. William and Lucas will teach us how to evaluate NFTs and Layer-1s respectively 🧑‍🏫
  2. Ben is publishing the big Ethereum Q2 report 🔥
  3. Matthew Green joins us on the podcast on in a Defense of Cryptocurrencies 🛡️

Have a great weekend!

- Donovan

Donovan Choy

Written by Donovan Choy

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Former writer at Bankless.

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