Crypto ‘Savior’ Bankman-Fried seems unfriendly

Sam Bankman-Fried’s stated goal of stopping a few insolvent crypto-borrowers from launching a domino series with errors is starting to look a lot more like a coup hunt.

The billionaire founder of the FTX exchange had positioned himself as the industry’s lender of last resort, announcing plans to “stop contagion” from falling cryptocurrency prices and the bankruptcy of the hedge fund Three Arrows Capital, which lost a fortune in the wake of a $ 48 billion failover in May.

See also: Will Crypto’s richest billionaire become his “Lender of Last Resort”?

“But after announcing a deal, at a reasonable basement price, to buy one of the two companies, he offered backstop lines of credit totaling $ 750 million, and told Bloomberg over the holiday weekend that he was looking to buy crypto mining companies if he could.” a truly compelling opportunity, ”Bankman-Fred’s role as the crypto lender of last resort sounds a bit hollow.

Or maybe just not so successful.

A $ 500 million backstop credit provided by his Alameda Research investment firm to cryptocurrency broker Voyager Digital last month appears to have been insufficient to keep its head above water. After limiting withdrawals two weeks ago, Voyager stopped them very late on July 1st. Voyager declared Three Arrows a default on a $ 650 million loan last week.

While Voyager had “taken steps to avoid this result – including securing a credit facility from Alameda and lowering daily withdrawal limits,” CEO Steve Ehrlich twitret Friday that the step was necessary “to protect assets and preserve the future of the Voyager platform” while exploring strategic options.

Buy low

Together with Voyager, Bankman-Fried gave cryptocurrency lender BlockFi a $ 250 million credit line recently.

“I feel we have a responsibility to seriously consider going in, even if it’s a loss to ourselves,” Bankman-Fried said in June. “I think that’s what’s healthy for the ecosystem, and I want to do what I can to help it grow and thrive.”

However, the backstop credit he extended via FTX to crypto lender BlockFi, which also lost big for Three Arrows, was quickly revealed to be a way to buy the company at good basement prices.

Although not as low as $ 25 million around last week, the purchase price of BlockFi was $ 240 million – cheap for a company that was close to acquiring venture capital in a “down round” and valued it at $ 1 billion instead. for the former $ 3. billion.

A former investor, cryptocurrency investment firm Morgan Creek Digital, has reportedly struggled to raise funds to counter Bankman-Peace’s initial deal with BlockFi, which Morgan Creek said would oust former investors.

See more: Cryptocurrencies seeking saviors find wolves in sheep’s clothing instead

Bankman-Peace’s latest targets may come from crypto mining companies. On July 1, he told Bloomberg that he was considering buying mining companies, since “they play a small role in the possible spread of infection,” Bankman-Fried said. “It could be a really compelling opportunity for us – I definitely do not want to ignore that opportunity.”

Crypto mining companies often borrow heavily to buy the specialized and rapidly outdated computers used to create new bitcoin, ether and other cryptocurrencies, and pay the loans with income from freshly minted coins – which are worth a fraction of their previous value.

Bargain Hunter’s approach

The crypto borrowers who were injured in the Three Arrows collapse also included Celsius, who is now struggling to avoid bankruptcy, and Singapore-based Vauld, who also stopped withdrawals over the holiday weekend.

So the infection does not seem to be so well contained.

However, FTX is not the only well-funded company on the hunt. Crypto lender Nexo – which made an early, rejected offer to buy Celsius – is now reportedly close to buying Vauld.

FTX is also said to have looked at an agreement with Celsius, but found the finances too damaged, The Block reported last week. Celsius is now struggling to avoid bankruptcy.

The Block reported on Tuesday (July 5) that Nexo had signed a 60-day exclusive “term sheet with Vauld with a plan to acquire up to 100% of the Singapore-based company” while pursuing due diligence on the state of Vauld’s loan portfolio .

At the retail level, crypto borrowers such as BlockFi offer a centralized version of decentralized finance, or DeFi, security loans. These usually require 125% to 150% security locked, which is liquidated if the crypto used to get the loan falls too far. But large private customers can get much looser terms.

They also offer high interest rates to crypto owners who lend them their tokens. Although they looked a lot like a savings account with higher interest rates on the surface, they have far more risk, and the Securities and Exchange Commission considered them to be securities offerings, and joined government regulators to fine BlockFi $ 100 million.

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