3AC - The Source of Crypto Contagion & SEC!

FTX buys BlockFi for $240M, Grayscale sues SEC, Voyager suspends all trading, withdrawals & deposits, and more..

Welcome to the #16th edition of DeFi Fridays!

101 today:

• Major happenings in the ecosystem —

  FTX buys BlockFi for $240M, Grayscale sues SEC, Voyager suspends all trading, withdrawals & deposits, and more..

• A topic we explain — 

  The Crypto Contagion Situation Explained.

The Source of Crypto Contagion - 3AC

It all starts with Grayscale’s GBTC funds - crypto’s first publicly traded BTC Fund.

Before the bear market, Grayscale traded at a premium to BTC. Credit investors could deposit BTC to the GBTC fund and receive an equivalent percentage in $GBTC shares after 6 months.

Say, if the fund has 99 BTC under management, and you deposit 1 BTC (worth, say $10,000), you’d receive 1% of the fund's shares after 6 months.

All was well - up to the point that every $1 of $BTC deposited yielded ~$1.40 in shares. It was a good arbitrage opportunity & 3AC took part.

Because Bitcoin was still in a nascent phase during the bull run of 2020s, shares of GBTC trading on OTC markets were the only way to get BTC for retail investors and firms operating within the walls of the legacy financial system.

3AC would borrow BTC from other sources and deposit in Grayscale. They would then put the collected GBTC shares as collaterals, and borrow stablecoins against it. They would invest these heavily in stablecoins like Terra & try to take the opportunity of the sETh-Eth arb.

3AC would keep taking on more loans for capital. They took $660M unsecured loan from Voyager, ~30% overcollateralized $1B loan from BlockFi, among many others.

Wu Blockchain @WuBlockchain

Voyager Digital LLC has issued a notice of default to Three Arrows Capital for failure to make the required payments on its previously disclosed loan of 15,250 BTC and $350 million USDC. Voyager intends to pursue recovery from 3AC.prnewswire.com/news-releases/…

Wu Blockchain @WuBlockchain

Reveal the secrets of 3AC' 1 billion big creditor Voyager: Its assets reached $6.2 billion as of last year, largely from customer deposits. The vast majority of loans are unsecured. BRIAN BROOKS was on the board of directors. Read more: https://t.co/1kI6Tw84zo

Brew Money @brew_defi

2. Blockfi's most institutional loans were NOT over collateralized. 24% institutional loans were over-collateralized in 2019. ~16% in 2020. ~17% in 2021.

Mister Todd @pondermint

SEC order re Blockfi: most institutional loans were not over collateralized. oh my. https://t.co/UklPhEWI8G https://t.co/n4zMbqjZku

Once 3AC started going under, the initial contagion effects started to ripple.

The DeFi Edge 🗡️ @thedefiedge

@zhusu @KylesLdavies Now we're starting to see the initial consequences come in. Finblox, a CeFi company, is pausing reward distributions because of 3AC's volatility. 3AC is an investor in Finblox. Credit: @FatManTerra

Finblox @finblox

IMPORTANT UPDATE FROM FINBLOX! https://t.co/VjclRMMiSe

Today, majority of the institutions/VC fund related to 3AC is down bad. Here’s a list put together by @ApeDigest showing the extent of contagion.

With everything going on, we must learn at least this one lesson:

Take possession of your crypto & eliminate risk wherever possible.

#takebackwhatsyours

DavidHoffman.eth 🦇🔊🏴 @TrustlessState

CeFi lenders are blowing up specifically due to properties of centralization. - black boxes - trust - human folly Not only do DeFi lenders now have fewer competitors; their competitive edge is now proven and legitimized CeFi: fragile and unstable DeFi: robust and stable

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Major News in the Ecosystem:

⚠️Voyager Digital temporarily suspends trading, deposits, and withdrawals.

Stephen Ehrlich @Ehrls15

Voyagers, today we made the difficult decision to temporarily suspend trading, deposits, withdrawals, and loyalty rewards. Read more at:

finance.yahoo.comVoyager Digital Provides Market UpdateVoyager Digital LLC, the operating platform of Voyager Digital Ltd. (“Voyager” or the “Company”) (TSX: VOYG) (OTCQX: VYGVF) (FRA: UCD2), announced it is temporarily suspending trading, deposits, withdrawals and loyalty rewards, effective at 2:00 p.m. Eastern Daylight Time today.

⚠️SEC rejects Grayscale's and Bitwise spot ETF applications. In turn, Grayscale sues SEC.

Grayscale @Grayscale

We fervently disagree with the SEC’s decision. We are disappointed. We are prepared. We have spent months preparing for all scenarios. No realistic outcome would have been a surprise.

⚠️Public RPC gateway for Polygon and Fantom compromised.

CIA Officer @officer_cia

Attention please, attack on @0xPolygon is ongoing right now! Users see an RPC error asking users to urgently reset their seed on polygonapp net (looks like this is wether DNS hijack or a form of a supply chain attack). Just a scam popup to bring you to a page to put your seed.

⚠️Quixotic exploited.

Quixotic 🔴✨ - Optimism NFT Marketplace @quixotic_io

We can confirm that a recent update to our marketplace contract was exploited, allowing a hacker to steal approved ERC-20 tokens 1. We will be refunding all stolen ERC-20 tokens 2. NFTs remain safe and are not affected by the exploit 3. All marketplace activity remains paused

Apetimism 🔴 | Sold Out @apetimism

Dear Apetics. We found that there might be some possibility that some breach might be happening on @quixotic_io right now. Some attacker is attacking the "Offer" feature. Therefore we suggest you to cancel all the offers immediately if you have one. 🧵⬇️

🔰FTX signs deal with an option to buy BlockFi for up to $240M.

Zac Prince @BlockFiZac

This, together with other potential consideration, represents a total value of up to $680M. We have not drawn on this credit facility to date and have continued to operate all our products and services normally. In fact, we raised interest rates, effective today.

⚠️Harmony has begun a global manhunt for its hacker.

Brew Money @brew_defi

@AxieInfinity 8. Then: @harmonyprotocol 's Cross-Chain Horizon Bridge Hacked for $100M on 23rd June. Then: Harmony issued a $1M bounty in exchange for the return of funds on 25th June. Now: The Hacker(s) started moving Stolen Funds through Tornado Cash on June 27th. ..continued👇

⚠️Nexo issued a cease & desist notice.

🔰Ethereum Gray Glacier hard fork is successful.

Crypto-Gucci.eth ᵍᵐ🦇🔊 @CryptoGucci

1/ The Ethereum Gray Glacier hard fork was successful today A quick summary: • EIP-5133 successfully implemented • Difficulty bomb pushed back 700,000 blocks (100 days) • Block times back to 13 seconds • Node operators must update their clients

Nethermind @nethermindeth

🧊Gray Glacier hard fork is successful 🧊 Nethermind nodes are fine. Block time will go back down to 13 seconds. Difficulty bomb delayed 🙌 https://t.co/NPkZMYhWHn

💎 Wait for Gem Findouts💎

In this edition - we’ve found a not-so-hidden gem for our readers. 💎

investrly

Let’s be honest, markets make a lot of noise. And the web3 market is no less. Scrolling away on #cryptotwitter will make sure you know that. And so, we have brought you a source that separates insights from the noise. 

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Their recent edition shares wise words on opportunities available in the crypto bear market. 

Disclaimer: Nothing included in DeFi Fridays should be taken as financial advice. DeFi Fridays & investrly have mutually decided to mention each other in their newsletters.

That’s it for today, folks. 💃

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See ya next Friday. 🧢