Hoo exchange pauses withdrawals
The Hong Kong-based cryptocurrency exchange Hoo announced that they would be pausing withdrawals, after so many customers tried to withdraw their crypto that they began to run out of funds in their hot wallet. The company assured customers in a blog post that the pause was temporary and that withdrawals would resume in 24–72 hours once transfers from a "backup multi-signature wallet and other assets" were complete, leaving one to wonder what those other assets might be. The blog post finished by stating, "The platform is trying to reconfigure medium- and long-term assets in an orderly and reasonable manner. Please don't worry and there will be no loss of your assets."
- "Announcement of Withdrawl on Hoo", Hoo blog
Defi insurer Bancor pauses their impermanent loss protection due to "hostile market conditions"
The defi insurance protocol Bancor announced on June 19 that they would be suspending their impermanent loss protection due to "hostile market conditions". The feature sought to protect users from "impermanent loss", a risk when a person provides liquidity to a pool, the ratio of deposited assets changes, and the person winds up with more of the token that's worth less.
Bancor wrote in their announcement that "Withdrawals performed during this unstable period will not be eligible for IL protection. Users who remain in the protocol will continue earning yields and be entitled to withdraw their fully-protected value when IL protection is reactivated." Many view this as Bancor holding their crypto hostage, because they would take a major loss if they withdrew while IL protection was paused.
The post goes on to say that "two large centralized entities" (likely Celsius and Three Arrows Capital) have rapidly liquidated their $BNT positions and withdrawn a large amount of liquidity; Bancor also wrote that another entity has opened a large short against $BNT.
- "Market Conditions Update — June 19, 2022", Bancor blog
Solend DAO passes proposal to take over the account of a large holder with a position that poses systemic risk
Solend DAO, the DAO behind the Solend lending protocol on Solana, just passed its first ever governance proposal. A whale used their platform to take out an enormous margin position, depositing 5.7 million Solana (currently worth $170 million) to withdraw $108 million in stablecoins. Their position represents 95% of all Solana deposits on the platform, and the position risks partial liquidation if Solana drops in price to $22.30.
The proposal allows Solend to temporarily take over the whale's account to liquidate the position "gracefully", rather than allowing the liquidation to happen as it normally would. This stems from the concern that the partial liquidation (20%, or around $21 million) would "cause chaos" on both Solend and the Solana blockchain more broadly. The proposal outlined concerns around Solend potentially ending up with bad debt, and liquidators "spamming the liquidate function" and potentially taking down the Solana chain.
The proposal elicited strongly negative reactions from many in the crypto community, who feel that a project taking over a user's account flies in the face of the concept of defi and sets a dangerous precedent. Others blame Solend for allowing the position in the first place, given the level of systemic risk. Some have also pointed out that Solend may be exposing themselves to legal risk by retroactively changing the terms of the loan.
The proposal succeeded hours after it was proposed, with one whale providing 1 million votes out of the 1.15 million votes in favor.
- "SLND1: Mitigate Risk From Whale" proposal
Magic Internet Money stablecoin wobbles
A stablecoin called Magic Internet Money (yes, really) is one of the latest to have trouble maintaining its peg. The stablecoin is issued by the Abracadabra lending platform, which was founded by Daniele Sesta. Some may recognize the name from the Wonderland project failure in January, during which it was also discovered that the pseudonymous chief developer on the project was Michael Patryn, a shady character with a history of financial crimes.
On June 17, $MIM began to lose its $1 peg, and on June 18 it dropped below $0.91. Later on June 18, it returned above $0.95, but continued to be priced below its intended peg.
The supply of $MIM dropped precipitously in the wake of the Terra collapse, as traders lost confidence in algorithmic stablecoins more broadly. Amidst plummeting markets, rumors have surfaced that Abracadabra is "nearly insolvent" due to bad debt left over from the Terra crash. Sesta has refuted the claim, writing on Twitter that the "treasury has more money than the debt" and that the rumors were simply people "spread[ing] FUD [to] try to recover your losses from shorting a bit". The project announced that it would be implementing "peg stability measures", including increasing interest rates on one of their lending markets.
MakerDAO halts Aave–DAI direct deposit due to concerns over risk
MakerDAO voted to disable the Aave—DAI direct deposit module, which previously allowed users to mint DAI (MakerDAO's stablecoin) and deposit it into the Aave lending protocol. According to a MakerDAO team member, 100 million of the 200 million DAI borrowed on the Aave project is borrowed by Celsius and collateralized primarily by stETH. Celsius paused withdrawals several days before MakerDAO's decision, and is apparently underwater. stETH is Lido-staked Ether, which also has been encountering issues amidst the market downturn and heightened withdrawal pressures.
The same MakerDAO team member wrote in the forum that "Contagion risks in DeFi are increasing", and that the project wanted to "cut exposure" to projects that were in trouble. "We could be dealing with Lehman's moment in crypto," he wrote.
Three Arrows Capital looks for a bailout
The Wall Street Journal reported that Three Arrows Capital, a crypto hedge fund that was rumored to be insolvent several days earlier, was indeed pursuing last-ditch options to make good on their debts. 3AC had major exposure to Luna, a token that plunged in value during the collapse of the Terra ecosystem in May, and lost around $200 million in that catastrophe. The collapse of other projects and the plummeting prices of cryptocurrencies in general exacerbated 3AC's situation, causing them to take losses in other risky plays they had made, and ending with them unable to pay off debts to creditors.
According to the WSJ, 3AC has hired legal and financial advisors to pursue solutions including asset selloffs or rescue by another firm, and is trying to extend the deadlines for outstanding debt repayments.
- "Crypto Hedge Fund Three Arrows Capital Considers Asset Sales, Bailout", Wall Street Journal
Babel Finance suspends withdrawals and redemptions
Babel Finance is the latest crypto finance platform to suddenly limit customer withdrawals. Citing "unusual liquidity pressures" and "conductive risk events" to crypto institutions, Babel announced that they would be "temporarily suspending" redemptions and withdrawals for an indeterminate period. Babel Finance had just completed a $80 million Series B round, with a valuation of $2 billion, in May.
Some in the crypto space have been encouraging people to withdraw their funds from any type of staking or lending platform, as liquidations and failures to repay debt spreads through the tightly-interconnected ecosystem. On June 16, yield farming platform Finblox implemented a very low cap on the amount of funds customers could withdraw, citing exposure to the apparently insolvent Three Arrows Capital.
- "Babel Finance Suspends Withdrawals, Citing 'Unusual Liquidity Pressures'", CoinDesk
- Notice from Babel Finance
AEX crypto exchange limits withdrawals after a $1 billion "bank run"
The AEX crypto exchange is among a growing number of exchanges to limit customer withdrawals amidst a crypto downturn. In an announcement, AEX wrote that "we honestly admit that AEX Global platform has met some problems, which involve a bank run of more than 1 billion USD".
The exchange then announced they would be delaying the withdrawals of most popular cryptocurrencies for 36 hours "to avoid unnecessary panic withdrawal". A follow-up blog post the next day announced they would be allowing users to withdraw, but only up to $500 a day. They later adjusted the withdrawal limits to a more flexible model, but left them in place.
As an apology to their customers, AEX promised "AEX Shareholder Badges" to the people with the most funds in their platform. They also announced a Texas Hold'em Carnival to show their "appreciation" of their users, but they canceled it the same day. Perhaps focusing on the liquidity issue is the right choice...
Anna "Delvey" Sorokin announces she will "move away from the 'scammer persona'" and launch NFTs
Anna Sorokin, the scammer who convinced people and companies to give her hundreds of thousands of dollars by pretending to be a German heiress, has decided to get into NFTs. After winding up with a "scammer persona", which she says is a result of the Netflix series about her and not a result of the scams that landed her in prison, she has announced her intentions to "move away from" it. Now she is focusing on an NFT collection, which she announced in an interview from a detention facility in New York.
Finblox implements withdrawal limits and pauses rewards due to exposure to Three Arrows Capital
Finblox is a crypto yield farming company that describes themselves as a "savings platform" and promises "up to 90% APY on your crypto!". They announced they would be preventing users from withdrawing more than $1,500 from the platform, or earning the rewards they were initially promised. In an announcement, Finblox wrote that they were making the changes due to "numerous media reports" about Three Arrows Capital, a hedge fund and investor in Finblox which is widely rumored to be insolvent amidst the crypto downturn.
Finblox announced that all users would only be able to withdraw up to $500 a day, up to a monthly maximum of $1,500 — quite a change from the $50,000/day withdrawal limit for some of their users. They also wrote that they would be pausing reward distributions, and delaying their referral program and deposit rewards, and preventing newly registered users from creating new crypto addresses.
Finblox ended the message to their users by saying they would "do everything in its power to protect our users' funds and reinstate our services in full", but such a dramatic move seems to suggest the platform is another domino to fall as companies collapse throughout the crypto ecosystem.