Doom Gloom Boom Boom

Crypto Crash | Celsius Insolvent? | 3AC Su Zhu | Interest Rate Hike | Jack Dorsey Web5

Jun 18, 2022

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Dear Bankless Nation,

Here’s a recap of the biggest and baddest news in this third week of June, 2022.

This bear market is getting very beary

Crypto prices are crashing again, anon.

BTC and ETH opened the week at 30K and 1800$. They currently languish at 19K and $1000. The moves represent a drawdown of 33% and 36% respectively — in just a matter of days.

The entire crypto market cap is down by 35% — from 1.1T to 843B — knocking us back down to the 12 digit club.

For now, though, this Category 5 crypto collapse is following in line with historic trends. Bitcoin currently sits at $19,400, a 71% slump over a ten-month period from its August 2021 all-time-highs (ATH) of $67K.

How does this compare to the last crypto cycle? When we look at Bitcoin’s price trajectory ten months out from its 2017 ATH (from $19.5K to $6,500), the drop was relatively similar at 68%.

Unlike 2018 though, the current market crash is heavily induced by exogenous macroeconomic factors. This week saw the Fed raise interest rates by 75 basis points in a bid to beat inflation down from its current raging levels at 8%+. That’s the Fed’s most aggressive interest rate hike since 1994 — and it seems, as they say, that ‘the floggings will continue until morale improves.’

Stock market down bad (-23.39% YTD), Crypto down bad (-55% YTD), Inflation big up (8.6%). But at least we have each other, anon.

Here’s a bottom signal for you:

It’s time for a Mental Health Moment!

To Bankless readers who are convicted to hodl through the pain, here’s some advice:

Stop checking market prices: turn off price notifications!
Work on yourself: go to the gym, or read a book.
Build something: start a blog, make some art, join a DAO community and contribute.
Level up in crypto: learn DeFi and prep yourself for the next bull run.
Listen to Vengaboys: Boom boom boom boom. I want a double boom.

Remember that Web3 is light years ahead of where it was last cycle, that decentralized tech development and adoption continue to expand, and that everything will be more than just fine. It’ll be awesome.

Now, back to the bad news.

Ce Fi Fo Fum, I smell the blood of a VC Fund

Two prominent centralized crypto institutions are dominating headlines this week as they implode in spectacular fashion.

The first is Celsius, a FinTech platform that offers crypto exposure to retail investors without all the annoying tech-y bits like actually interfacing with DeFi and wallet self-custody.

With ~$11B of crypto under custody, Celsius is the biggest player in the fiercely competitive “CeDeFi” space with the likes of BlockFi and Nexo. They’re crypto banks.

Celsius endured rampant rumors of insolvency this week after an over-leveraged stake in Lido Finance’s liquid staking derivative stETH, which is slowly un-non-depegging from ETH (find out what that means and why it’s happening), despite being locked up until after the Ethereum merge.

To add to that, rapidly falling BTC prices this week also saw Celsius treading the thin line of liquidation on its Wrapped Bitcoin (wBTC) Maker vault.

Dirty Bubble Media: 🌡☠️ @MikeBurgersburg

🚨 Celsius Network has 17,919 $WBTC leveraged in Maker protocol. This position faces liquidation at $22,584/$BTC. $278 mil $DAI debt, making it the largest individual debt position on the protocol.

To prevent liquidation, on-chain activity confirmed that Celsius topped up ~6000 wBTC to the vaults to maintain healthy collaterization ratios.

In concert, Celsius jammed the brakes on withdrawals on its platform, a move that both fueled and substantiated rumors of its impending insolvency.

On the evening of Sunday the 12th, Celsius’ founder Alex Mashinsky was tweeting the following:

Alex Mashinsky @Mashinsky

@mdudas @cory_eth @CelsiusNetwork Mike do you know even one person who has a problem withdrawing from Celsius?, why spread FUD and misinformation. If you are paid for this then let everyone know you are picking sides otherwise our job is to fight Tradfi together...

Only a matter of hours later, Celsius halted all withdrawals.

While that tweet was aging very poorly, very quickly, Celsius’ was overtaken in the race to insolvency by widely exposed hedge fund Three Arrows Capital (TAC).

The past week’s market nosedive saw TAC suffering up to $400M in liquidations, accelerating rumors of the fund’s inability to meet margin calls and impending insolvency.

Danny @Danny8BC

1) What happened between 3AC and us and what we know so far: @zhusu @KyleLDavies

TAC losses come on top of freshly sustained bruises from its $560M loss in locked LUNA just last month.

And like Celsius, TAC’s large stake in stETH is bad news for its balance sheets. This has triggered massive dumps.

moon @MoonOverlord

people think Celsius is the biggest stETH dumper but its 3AC and it isnt relatively close, they are dumping on every account and seed round address they have, most looks like its going to payback debts and outstanding borrows they have

TAC founder Zhu Su’s decided that vague was the way to go when confirming the VC’s troubles:

Zhu Su 🔺 @zhusu

We are in the process of communicating with relevant parties and fully committed to working this out

It’s worth noting how much of this week’s turbulence rests on the lack of CeFi and its lack of transparency. Hint: It’s pretty much all of it.

DeFi excels because on-chain transparency keeps it fair and honest. The opacity of CeFi enables a smorgasbord of unsound activity that is only now being exposed when it's already too late.

Remember, folks: This is why DeFi > CeFi. More centralized DeFi services providers will be catastophically exposed by their risk if market prices continue to fall.

🤖 Leshner @rleshner

I became a DeFi founder in order to create a more transparent, autonomous, and safer financial system. Watching the implosion of UST, Celsius, 3AC, and (hopefully not) more, all of which are opaque and trust-based, reaffirms the need for *Decentralized Finance* more than ever.

Web3 News Roundup

Sure, there’s other news in Web3 right now. We can’t promise any of it is good news, though.

The layoffs cometh

Last week, Robinhood, Gemini, 2TM and Bitso reported layoffs of ~10% of their workforces.

This week, Coinbase (18%), Crypto.com (5%) and BlockFi (20%) are announcing more layoffs.

Binance on the other hand (and Kraken and Polygon), is hiring for 2000 open positions. CZ takes a veiled stab at Crypto.com’s mammoth advertising deals last year.

CZ 🔶 Binance @cz_binance

It was not easy saying no to Super bowl ads, stadium naming rights, large sponsor deals a few months ago, but we did. Today, we are hiring for 2000 open positions for #Binance.

Web2 + Web3 = Web5

Jack Dorsey’s venture fund TBD unveiled this week “Web 5”, a decentralized and tokenless Bitcoin-maxi effort to build solely digital identity atop the Bitcoin blockchain.

Namcios @namcios

1/ Jack Dorsey’s @TBD54566975 unit has just announced it is building “Web5”. This new decentralized web leverages #Bitcoin to put users back in control of their data and identity - once and for all. Here’s a thread with all you need to know 🧵…

Tl;dr: Web5 is Bitcoin plus Decentralized Identity — and some dodgy math.

Lawsuit? Not if I sue you first!

The crypto think tank Coin Center is suing the Treasury & IRS on grounds that an infrastructure law contains an unconstitutional crypto tax-reporting requirement.

Coin Center charges that the requirement would set in place draconian levels of surveillance. Set to take effect in 2024, it would require any American taxpayers that receive $10,000+ in crypto to report personal information on themselves and the sender.

Oh, and Elon is getting sued for $258B by a Dogecoin investor. The charge? Dogecoin was a pyramid scheme. 🤦‍♂️

Optimism hacker returns 90% of OP tokens!

Optimism (✨🔴_🔴✨) @optimismPBC

Hey folks—in the interest of transparency (😉,😅), the address has returned a majority of the OP, and @wintermute_t has committed to reimbursing the Optimism Foundation for the remaining 2mm OP, which was kept as a bounty.

Optimism (✨🔴_🔴✨) @optimismPBC

Hey folks--in the interest of transparency, we'd like to share some details about an ongoing situation: https://t.co/915vIgRIJG Summary below 🧵👇

The OP Token saga has come to a happy ending — at least compared to most news this week). The anonymous hacker who pilfered 20 million OP token from the Ethereum Layer 2 platform’s June airdrop has returned 17m of them to Optimism.

A further 1 million was sent to Vitalik, presumably as some kind of whitehat tithing, but Optimism has stated those funds ‘will also be recovered.’ Look out, V. That sounds kinda threatening. Not the hero we want. Nor the hero we need. But the hero we’ll take if we have to. How’s that for optimism?

Here’s what we have lined up next week:

The Chainsmokers join us on the podcast to discuss music NFTs
Your guide to the best browser wallets on the market
How to spot the next victim to bear market insolvency

Say strong out there!

- Bankless

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Recap for the week of June 14, 2022

📺 Kevin O’Leary: Crypto’s Bull Shark

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ACTION RECAP 📚

READ 📚

📘 Zero Degrees Celsius
📘 5 Steps to Starting Your Crypto Career
📘 8 Projects I’m Bullish On This Bear Market
📘 Is DeFi Ded?
💬 What’s your bear market advice?

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📘 Welcome to Chainspace 💊
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Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.

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