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Web3 is Going Just Great

...and is definitely not an enormous grift that's pouring lighter fluid on our already smoldering planet.

Created by Molly White. Subscribe to her newsletter for weekly recaps.

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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.

Theme tags: Contagion, Hmm
Tech tags: stablecoins

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.

Theme tags: Contagion
Tech tags: DeFi, stablecoins

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.

Theme tags: Collapse

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.

Theme tags: Collapse, Contagion
Tech tags: lending

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...

Theme tags: Hmm

Anna "Delvey" Sorokin announces she will "move away from the 'scammer persona'" and launch NFTs

Anna Sorokin, sitting with her chin on her hand in courtAnna Sorokin (attribution)
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.
Theme tags: Bad idea
Tech tags: NFT

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.

Theme tags: Collapse, Contagion
Tech tags: DeFi

Hacker steals over $1.2 million from Inverse Finance, their second such exploit in under three months

A hacker was able to perform an oracle manipulation attack enabled by flash loans to siphon crypto worth around $1.26 million from Inverse Finance. The loss to the protocol was higher, at around $5.8 million. The attacker has already moved most of the stolen funds to the Tornado Cash cryptocurrency tumbler.

Inverse Finance is a borrowing and lending protocol that was hit with a different oracle manipulation attack in early April, which resulted in a $15.6 million loss.

Theme tags: Hack or scam
Blockchain tags: Blockchain: Ethereum
Tech tags: DeFi, lending

8 Blocks Capital calls on platforms to freeze Three Arrows Capital's funds after the firm goes silent

8 Blocks Capital is a Hong Kong-based trading firm. In a Twitter thread, Danny Yuan explained that 8BC had been using 3AC's trading accounts to reduce their trading fees. He wrote, "We had known them since 2018, thought they were competent and didn't think they were degen enough to lose billions and not employ basic risk management."

When 8BC contacted 3AC to make a withdrawal on June 13, they never received a reply. "We didn't think much of it at the time. After a while, the market stablized so we no longer needed the funds. We thought maybe they were just busy." The following day, 8BC noticed $1 million missing from their accounts. When they tried to contact 3AC, they again received no response.

According to Yuan, "What we learned is that they were leveraged long everywhere and were getting margin-called. Instead of answering the margin calls, they ghosted everyone." He called on platforms that still have assets from 3AC to freeze those assets, "so that those who 3AC owes can be paid back in the future after legal proceedings."

Theme tags: Contagion, Shady business

Kraken crypto exchange announces 🚩 culture overhaul 🚩

The U.S.-based crypto exchange Kraken has announced that, despite the layoffs and hiring freezes among its competitors in the ongoing "crypto winter", they intend to keep hiring aggressively. They also took the opportunity to announce that they "believe bear markets are fantastic at weeding out the applicants chasing hype from the true believers in our mission", and that they had "taken this opportunity to align our internal culture around a set of shared values". They also make it clear that anyone who disagree with the changes can GTFO: "In commitment to these values, we also expanded our permanent benefits program to make moving on a bit easier for anyone who feels it's time for the next chapter in their career."

These internal values include requiring employees to believe in "The Mission", "to accelerate the worldwide adoption of cryptocurrency". Their culture explainer also includes various points (emphasis in the original):

  • "We will engage in lobbying, as a single-issue donor, supporting controversial politicians and legislation that furthers The Mission, possibly to the detriment of other civil rights causes"
  • We will advertise with and sponsor controversial television programs, podcasts, influencers and events, if it furthers The Mission
  • We may incorporate firearm and self-defense training in to corporate retreats
  • Should we aim to be exemplary in terms of stereotypical team diversity measurements? No.

The culture document goes on to say that "Someone Must be Offended, Some of the Time":

  • "Krakenites are welcome to request (and deny) personal language and communication preferences of each other"
  • Everyone is responsible for their own feelings
  • Being offended doesn't necessarily make you right
  • Being offended doesn't necessarily make you "harmed"
  • Words nor silence are ever "violence"
  • We do not call someone's words toxic, hateful, racist, x-phobic, unhelpful, etc.

Throughout the document are various notes to clarify that although some of what they're describing definitely sounds like they might be breaking the law, they're definitely not breaking the law: e.g., "Note: We are committed to eliminating all forms of discrimination against legally protected groups in every jurisdiction in which we operate."

Theme tags: Yikes

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