Aave maintains a $50 million insurance fund to absorb bad debt. However, this can't cover such a huge shortfall.
Aave faces approximately $200 million in bad debt after Kelp DAO bridge exploit
The Aave defi lending protocol is grappling with anywhere from $177 million to $236 million in bad debt after the Kelp DAO bridge exploiter used Aave to cash out their stolen rsETH. Rather than selling the tokens, the attacker used the rsETH as collateral to borrow wETH, leaving Aave stuck with the huge quantity of unbacked rsETH. Although Kelp and Aave both froze affected markets, the attacker had already cashed out. The attacker borrowed essentially all of the wETH available on the platform, leaving those who'd loaned those tokens unable to withdraw.
SpiritSwap to shut down after Multichain collapse
SpiritSwap announced on its Discord that the project will be shutting down on September 1 unless they can find a new team to take over the project by that time. SpiritSwap lost their entire project treasury in the collapse of Multichain, and announced that they have "run out of funds to cover the necessary operational costs." The project plans to remain operational until September 1 to remove their liquidity.
SpiritSwap was previously one of the most popular DEXes on Fantom, boasting an all-time-high of $374 million in January. It now has less than $3 million TVL, thanks in part to the Multichain collapse and to the broader cryptocurrency bear market.
SpiritSwap is only the most recent project to announce its closure as a result of the Multichain fiasco. In July, Geist Finance and Hector Network also announced they would be shutting down due to Multichain contagion.
Hector Network begins shutdown after Multichain collapse
Hector DAO, the governing body behind the Hector Network, voted to liquidate the project's $16 million treasury and distribute it to tokenholders, effectively putting an end to the project.
On July 14, a community manager wrote on Discord that "Hector Network ha[d] suffered significant damage to its ability to operate" after the Multichain collapse, and that the project faced a choice between liquidating the treasury and winding down or migrating to a new blockchain and trying to rebuild. The community chose the former.
According to a post on Discord, the winding-down process will likely take 6 to 12 months as the project appoints a liquidator, legal counsel, and auditor.
Geist Finance shuts down after Multichain-related losses
Defi lending project Geist Finance announced they would be shutting down after more than $200 million was drained from the Multichain project in two separate events in early July. Geist Finance had previously allowed people to borrow against assets bridged via Multichain, and had over $29 million TVL. However, price oracles are no longer reporting accurate prices of the bridged equivalents of tokens, which are now largely unbacked thanks to the missing assets, and trading at a massive discount to the original tokens.
Geist paused their smart contracts on July 6, then reenabled the withdraw and repay functions on July 9, while waiting for news from Multichain. Now that Multichain has confirmed that the missing hundreds of millions will not be recovered, Geist has announced they will not reopen. If they were to do so, the platform would almost immediately take on bad debt as people exploited the price discrepancies.
Multichain added, "Just to be clear this is in no way an attempt to blame Chainlink oracles which worked as they should. There are no oracles for the Multichain assets themselves because there was the expectation to exchange them 1:1. Nobody is to blame except Multichain here."
Delio crypto lender suspends withdrawals
South Korean cryptocurrency lending platform Delio announced to its customers on June 14 that they would be suspending withdrawals. In a letter to customers, they wrote that the decision was taken in response to the withdrawal suspension by Korean yield platform Haru Invest the previous day, which they said had led to a "sharp increase in market volatility and increased confusion among investors". Haru's suspension had caused a "sudden surge of withdrawals on our end", said Delio CEO James Jung.
Delio, like Haru, advertised yields of more than 10%.
- "출금 중지 조치 안내", Delio (in Korean)
- "Two Crypto Platforms Halt Withdrawals in an Echo of the Sector’s 2022 Woes", Bloomberg
BNB Chain team prepares to step in to prevent massive Venus Protocol liquidation
After the massive BNB Chain bridge hack in October 2022, the hacker was able to take out a massive position with the Venus Protocol defi lending project. They borrowed $150 million in stablecoins by putting up 900,000 BNB (~$244 million at the time).
The recent SEC lawsuit against Binance has caused the BNB token to plummet almost 25%, from $305 to ~$230. This puts the hacker's position dangerously close to the liquidation threshold of $220, which could cause substantial impact on the market via cascading liquidations.
In November, BNB Chain passed a governance proposal giving the BNB Chain core team the ability to liquidate the position if it approached the liquidation threshold, meaning they could repay the debt in a more controlled manner that wouldn't dump hundreds of thousands of BNB onto the market all at once.
On June 12 the Venus team tweeted a reminder: "BNBChain core team is ready to take over the $BNB position on Venus as planned if the BNB price hits the liquidation threshold. The liquidator address has prepared $30M already to refund the account loans with more to come if needed. No BNB will be dumped into the market and no shortfall is expected on Venus."
This is not the only bad debt on the Venus platform, which has been described as "opaque" by Protos and has been accused of trying to hide some of its liabilities.
NFL labor union is out almost $42 million thanks to crypto collapse
A report from The Athletic indicates that the National Football League Players Association, a labor union for NFL players, has been unable to collect nearly $42 million it is owed in licensing and sponsorship revenue. The Athletic cited sources suggesting the issue was directly related to the collapse of the crypto industry, and to its partners renegotiating licensing deals due to the downturn.
The amount is owed by affiliate OneTeam Partners. In April, Sportico reported that sports NFT platform Dapper Labs had discussed restructuring its deal with the NFL and NFLPA due to an extremely rocky year. So too had DraftKings, which had signed a deal with the NFLPA for its "Reignmakers" player trading card NFTs.
DCG shutters TradeBlock subsidiary
Digital Currency Group, the parent company of several companies in the crypto industry including Genesis, Grayscale Investments, and CoinDesk, announced that it will be shuttering TradeBlock, its trade execution and prime brokerage services unit. The company cited the typical reasons: "crypto winter" and "the challenging regulatory environment for digital assets in the U.S."
The decision comes amidst broader troubles for DCG, which is embroiled in the bankruptcy proceedings of its Genesis subsidiary. Earlier in May, DCG missed a $630 million payment to Genesis.
Crypto is the end of Storybook Brawl
Storybook Brawl, a card based autobattler game that was beloved by Sam Bankman-Fried, took its servers offline on May 1. The game had no connection to the crypto industry until its studio was acquired by FTX Ventures in March 2022. This was not taken well by its existing playerbase, who left a flood of negative reviews on Steam based on the developers' intentions to incorporate cryptocurrencies and NFTs. According to SBF, Storybook Brawl was going to be "the vanguard for the ethical integration of gaming and crypto transactions."
The end of FTX seems to have directly spelled the end of Storybook Brawl, which stopped announcing updates in November. However, Protos has pointed out that the game may likely be auctioned off as a part of FTX bankruptcy proceedings.
Belgian crypto lender Bit4You suspends activities
The only Belgian crypto platform, the Bit4You crypto lender, announced they would be suspending activities after the CoinLoan crypto exchange was ordered to suspend activities after being declared insolvent.
"To date we have no indication that the virtual currencies held on behalf of our customers with CoinLoan will not be recovered," they wrote in their announcement. Reassuring!