Why FTX causes solana to fall
Good morning, and welcome to Protocol Fintech. This Thursday: The FTX contagion, Twitter’s recycled payment plan and Upstart’s warning to other fintech lenders.
Off the chain
A lesser man would look at the battered fintech landscape and say, “Party over, oops, out of time.” But not Elon Musk! Musk is going to party like it’s 1999 with his new toy called Twitter. In early 1999, Musk emailed me about his plans to reinvent banking with a startup called X.com—plans that accelerated when he merged it with another startup that eventually became PayPal. On Wednesday, he talked about strikingly similar tricks in a Twitter Spaces chat. At Protocol, I dug into all the ways his new plan for Twitter to get into financial services and become a super app – possibly also called X! — sounded a lot like the X.com I remembered.
– Owen Thomas (e-mail | twitter)
Crypto contagion is real
The collapse of crypto exchange FTX has sent ripples across the crypto industry, but the final effects have yet to be seen as the trading firm’s complex web of relationships continues to unravel. One of the largest global crypto exchanges, FTX holds deposits for a number of major investors in the crypto industry. FTX also has close ties to Alameda Research, one of the largest investors in the industry. Both firms were founded by Sam Bankman-Fried, and Alameda has large stakes in many crypto projects and tokens, including Solana, which fell sharply this week.
The fallout from FTX comes after a series of crypto bankruptcies: Three Arrows Capital, Celsius, Voyager and others. These failures also had effects that can be seen across the industry.
- Crypto industry watchers wonder who else could be affected. As in previous incidents, the counterparts to these entities are not always known.
- Alameda is the most watched. Of the $14.6 billion in assets it held in June, $5.82 billion was in FTX’s original FTT token or other “FTT security,” according to a CoinDesk report on FTX’s ties to Alameda that helped spark it current crisis.
- Solana was Alameda’s second largest holding, with $1.16 billion in “unlocked SOL” or “locked SOL.” (Locked tokens are more difficult to liquidate.) The revelation of Alameda’s potential need to raise capital and sell Solana may have contributed to a steep drop in the price of Solana to $13.46, down more than 43% in the past 24 hours.
There were other knock-on effects. Crypto.com halted withdrawals of USDC and USDT on the Solana blockchain on Wednesday out of an “abundance of caution,” CEO Kris Marszalek wrote on Twitter, referring to FTX’s role in trading the Solana-based stable coins and operate a Solana Bridge. (Circle, which issues USDC, said native USDC on Solana was running normally.)
- Solend, one of the larger Solana lending protocols, reported that it was having trouble liquidating part of a large loan on Wednesday morning. It also disabled all lending, according to the website. Solend cited congestion issues as the cause of the problem and later said liquidations had done so resumed.
- Solana Labs CEO Anatoly Yakovenko, whose company helped develop the Solana blockchain and its associated token, tweeted that his company had no assets on FTX and estimated that his company had a two-and-a-half-year runway. “We launched in 2020 after markets crashed and the world went into lockdown – chewing gum is in our DNA and we’ll get through it together,” he wrote.
Alameda itself had exposure to several other crypto-lending outfits that had collapsed earlier this year, including Voyager, which it said it would repay $200 million to in September, and BlockFi, which FTX backed with a line of credit earlier this year. Activity on the chain showed that Alameda had loans on several DeFi loans protocols, analysts said. The effects of FTX’s crisis will take time to become clear: Bankman-Fried so On Thursday, he raised money to resolve FTX’s liquidity crisis and that Alameda would liquidate the trade. But with the size of the entities involved, and the large investors involved either directly or as counterparties, there is almost certainly more fallout. The biggest irony, given blockchain’s supposed benefits of transparency, may be how little we know.
– Tomio Geron (e-mail | twitter)
A version of this story first appeared on Protocol.com. Read it here.
A MESSAGE FROM THE FINANCIAL TECHNOLOGY ASSOCIATION
Don’t miss it! Register today to hear some of the biggest players in fintech discuss the industry’s most pressing issues at the Financial Technology Association’s first Fintech Summit: Shaping the Future of Finance. Produced in collaboration with Protocol, all sessions of the event will be broadcast live on November 16.
RSVP here today to join us on the 16th. November.
On the money
About protocol: Binance said it was no longer buying FTX following a “corporate due diligence” review.
FTX CEO Sam Bankman-Fried apologized for the crisis. He said on Twitter that he tried to raise $8 billion to repair the company’s balance sheet.
Also about protocol: The problems for FTX are also a “step backwards” for crypto in Washington.
SEC and DOJ investigate FTX. The investigation focuses on potential violations of securities laws by FTX’s US subsidiary.
Another iBuyer shuts down. Redfin is set to close its repatriation operations and reduce its workforce by 13%, laying off 862 employees.
Lemonade’s third-quarter sales topped Wall Street’s expectations. But the insurtech’s share price still closed the day down around 4%.
The upstart’s warning
The upstart warns that the worst may still be coming, even as rising interest rates and falling loan volumes have already sent the once-high-flying fintech lender’s stock down nearly 90% this year and prompted a round of layoffs last week.
The company reported earnings on Tuesday that missed Wall Street analysts’ estimates. Shares fell more than 20% in after-market trading, recovering only slightly on Wednesday. CEO Dave Girouard warned analysts that there could be more pain to come.
“We have chosen to take a conservative position with respect to the direction of the economy in the coming quarters,” Girouard said on the company’s earnings call. “In other words, we assume the worst is ahead of us. We will be pleasantly surprised if this turns out not to be the case.”
Read the full story at Protocol.com.
– Ryan Deffenbaugh (e-mail | twitter)
Moving and hiring
The Office of the Comptroller of the Currency is seeking a Chief Financial Technology Officer. An OCC job posting said the role would focus on “matters regarding digital assets, artificial intelligence, machine learning, cloud adoption, fintech partnerships,” and other issues for OCC-regulated institutions.” The banking regulator launched a fintech office last month.
Xero appointed Sukhinder Singh Cassidy as CEO. The Yodlee co-founder will replace Steve Vamos as head of the accounting software firm, starting on November 28.
FTX has reportedly lost most of its legal and compliance team. Semafor says the departures occurred on Tuesday after Binance revealed its now-cancelled plan to buy FTX.
Paradigm has launched a policy council. Former Speaker of the House Paul Ryan is a senior adviser to the council, which Paradigm hopes will “tell the story of Web3 in Washington.”
Damien Vanderwilt is stepping down as Galaxy Digital’s co-president and head of global markets. Vanderwilt will continue at the crypto firm as a senior advisor and chairman.
Brex has hired a couple. Samantha Kwok, most recently at Tableau, is the VP of engineering for the customer journey and Priya Lakshminarayanan, most recently at Meta, is the new VP of product for the customer journey.
In other Brex news, co-founder and co-CEO Henrique Dubugras has been elected to Expedia Group’s board of directors.
Tej Sidhu is Chief Technology Officer at Genesis Global. Sidhu joins the low-code development platform for finance from the same role at Umba.
A MESSAGE FROM THE FINANCIAL TECHNOLOGY ASSOCIATION
Don’t miss it! Register today to hear some of the biggest players in fintech discuss the industry’s most pressing issues at the Financial Technology Association’s first Fintech Summit: Shaping the Future of Finance. Produced in collaboration with Protocol, all sessions of the event will be broadcast live on November 16.
RSVP today to join the conversation.
Thanks for reading – see you on Monday (we’ll take Friday off)!
