Blockfi was paying around 8% in stable coins, if I remember correctly. I think their plan was to invest the money and make more than 8% and pocket the difference. That's pretty hard to do in a down market.
Having a spread between cost of borrowing and net return is how banks make money. Pay deposits X% while earning Y% on said deposits, where Y > X. Another way to make money is to buy collateral earning Y% and apply a structure on top of it and sell the product as yielding X% and pocket the difference, where Y > X. All structured products (e.g. MBS, CLOs, ABS, CDOs, etc) essentially work like this.
They wouldn't necessarily need to borrow money to do that. The naive play was using something like TERRA to earn 20% and pass through 8% to the depositors. But the spread amount itself should have raised eyebrows. If someone is paying you 20%, you're taking some kind of risk. And the worst kind of risk is risk you don't understand
This phrase comes to mind: "There's infinite demand when you sell dimes for nickels." IIRC, someone said it about Uber (maybe WeWork?) in Sebastian Mallaby's book The Power Law.
Crypto down so bad that the Winklevoss twins are now fronting an (awful) rock band. They don't even state their Gemini affiliations in their Twitter bios anymore.
How much money did they raise? like $1.2 billion? yikes. - edit - no, from what I can find they raised $100M then $350M last July and were looking to raise $500M earlier this month on a down round. Still... yikes.
I have invested in a fund that invested in blockfi in 2019, and they came back to ask for a follow-on a couple weeks ago, probably to bail out their last two funding rounds.
Interesting, I guess FTX is really in it to save the ecosystem but not sure the value for an investor (unless their portfolio is all crypto projects) to bail them out.
SBF was just tweeting last week about how their (earlier) $250m line of credit to BlockFi lets them "navigate the market from a position of strength". And now he's buying BlockFi in a fire sale. SMH
We take our duty seriously to protect the digital asset ecosystem and its customers.
Ah yes, the "duty" to prop up the market that keeps your Jane Street trading games alive and pockets lined with billions, what a noble cause. I think if SBF pulls off his crypto market rescue he'll be richer than Bezos over the next decade. Depends how much Father Fed intends on crushing inflation.
I'm still like 50/50 that SBF can sustain any of the rescuing that he's doing. The crypto space so rife with fraud and con games, I don't see why he's any different. He has been much more disciplined in keeping his business from overextending, but he's just positioning himself to be king of a trash heap. I'm sure he comes out of this plenty rich, but by comparison Jeff Bezos built multiple very real and very valuable enterprises and SBF has not.
FTX seems to have come out of nowhere and is going in every direction. I don't see how it's sustainable for them (without knowing financials. They seem to have a lot of large investors).
I saw an internal marketing pitch for Alameda somewhere on twitter. It appears that SBF made the decision to be delta neutral with respect to crypto-currencies. So, FTX/Alameda were cashing out into USD when crypto reached ATHs while other firms in the space kept crypto on their balance sheet.
Now that crypto prices have collapsed, FTX/Alameda have the USD war chess to go on a shopping spree for anything/anyone that were not cashing out during the boom.
This feels like the strength of the smarter players in the industry protecting the industry and strengthening it, in the face of impropriety and gang tactics on the other side of the fence (TradFi).
Wow. I actually really liked listening to the BlockFi CEO. I made a cool 18% in the last 12 months using their interest account. Ah, well. I guess it's time to cash out.
Yeah. It was play money, and I was just accumulating interest. I think most things in crypto are pretty shady, but Zack Prince struck me as honest. The main risk (I think) was the unpegging of the stablecoins.
Had to look them up. Among other stuff, they let you borrow cash using crypto as collateral. That sounds like risky business at this time. They seem to apply a 2x safety margin but that might not be enough.
Their over-collateralization requirements apply to retail borrowers, not institutions. If they stuck to just over-collateralized loans (for all borrowers), they could have been a great service that I'd happily continue using.
> An FTX spokesperson said the company “would not be commenting on the matter.” A BlockFi spokesperson said the company “does not comment on market rumors.”
Ok so how is this substantiated?
Flagged, and this news source is now marked as "Fake News" in my feed. This looks more like a hit piece on BlockFi to trigger a collapse.
I was speaking to the industry as a whole. The more exchanges and platforms consolidate, the more it becomes the banking system, but with more risk and more complexity.
Ah, it seems like the crypto industry has borrowed the “too big to fail” book that also decentralized the losses to the taxpayer. Some things never change.
