Three Arrows Capital has defaulted on a loan worth more than $670M | Hacker News Reader

Three Arrows Capital has defaulted on a loan worth more than $670M

cnbc.com

375 pointsmisiti3780275 comments

I always have mixed feelings when someone is warned about the riskiness / foolishness / stupidity of a course of action, and then suffers for it.

On the one hand, there's a certain satisfaction or Schadenfreude in the sense of vindication. And it's pleasant to feel like my own wisdom or self-control has been validated.

OTOH, I know that everyone has limited wisdom / self-control / intelligence, including me. So it seems hypocritical to mock someone who trips, knowing that I'm just lucky to sometimes avoid the hazards that would trip me up.

In the end, about the only conclusions I'm really confident in is that trouble besets us all, and usually it's good to default to kindness and sympathy.

EDIT FOR CLARIFICATION: I'm not saying that I want swindlers to succeed. I want such predation crushed into dust. My comment is about the people who don't intend harm to others.

A fool and their money are soon parted. The real problem is that swindlers have made a huge amount of money and can use that money to corrupt politicians so it affects the rest of us. It’s not just the extra tax of having to care for the newly impoverished.

My former local community went all in on a bitcoin scam, they made commissions on new entrants so I never heard the end of it. I only talked about it when asked but my warnings not only fell on deaf ears I was effectively ostracized as people were worried that I would talk new entrants out of it. “Don’t talk to that guy, he’s a no-coiner who doesn’t want you to be rich, he’s ngmi”. It was worse than Amway. Even after the crash many of them still avoided me, I guess now out of embarrassment, or worry that I would shove it in their faces like they did to me. I would never. It destroyed the community and many local businesses.

Edit: just found out which one it was, it was USI Tech. It failed 4 years ago so it’s not even part of the latest crop. Just sad that it keeps happening.

The problem is the fintech industry - both crypto and mainstream - exists to swindle.

The biggest rewards come from crossing the line and avoiding regulation/enforcement, either by legitimate or illegitimate means (including bribing enforcement officials).

Next biggest are rewards for crossing the line and delaying enforcement until you can launder your rewards to a safe haven.

If you're arrested and jailed - only likely in cases where you inconvenience certain very rich and powerful people, not ordinary folk - it isn't usually for long. And you can afford the best representation to minimise the risk.

So the risk profile is very much slanted towards rewarding the unscrupulous.

Example: Even after all the confusion around the $400m or so "missing" from Mt Gox, Mark Karpelès only received suspended sentences and spent no time in jail. Even after the recent crash, that's still more $1.5bn at 2022 values.

> Mark Karpelès only received suspended sentences and spent no time in jail

He was in jail from August 2015 to July 2016, if his wikipedia article is correct. The suspended sentence came after that.

I would argue that the risk:reward is still very heavily weighted toward reward.

I would happily spend a year in jail for $1bn+

This seems like an unnecessarily harsh take.

For example, some fintech companies aren't groundbreaking from a tech perspective, but they make big strides on efficiencies from legacy systems. As long as you deliver value and are capturing some of that value, a business can be made.

A rule of thumb I've used in both career and investment decisions is that to make money, at a minimum, one has to be in the vicinity of where money moves.

Fintech - in any of its forms, as you note - takes the maxim to its conclusions and seeks rent over transactions themselves, which gradually inclines it towards zero-sum "find a mark to dump my toxic assets on" shenanigans. So the industry perpetually leverages itself into fragility on the backs of "rip to them but i'm different" leadership and whomever they can convince to come along. At the nation-state level this creates nasty entanglements of regulatory capture and debt that let market leaders who play the game well make rules for themselves and pay off enforcing bodies, which contributes to macro-scale misalignments in who is getting funded or regulated for what, and therefore many "ills of the market".

The tech of crypto assets themselves, on the other hand, is antifragile in construction: Winning at the trading game does not result in regulatory capture or bailouts, since the settlement ultimately takes place on-chain, and on-chain is an automated consensus, one relatively hostile to political machination. Rent-seeking doesn't scale up well with this kind of asset. You can pull a small-time scam, but it doesn't lead to an empire lasting for generations. And if your asset becomes too hard to trade in because you've come up with some crafty way of polluting it or gatekeeping it, it's substitutable in a way that state-backed instruments are not. Price survival over a crypto bear market is a pretty strong signal for a project, and as the market gets bigger it attracts bigger players trying to remake the rules with a slant so that they can win. It's escalated every cycle, and really is a phenomenon beyond retail now.

What this past cycle entailed was an attempt by larger fintech players to muscle in on the crypto game and apply various strategies to capture it by adding obfuscating instruments in the name of liquidity and yield. The ones who survived made an early exit or successfully derisked, but many of them committed to their strategy in a way that ensured they would lose. And from here on, the only remaining escalations of that game involve some of the largest amounts of capital on the planet - the biggest banks, or actual governments.

There are many fintech companies that I see as hugely important in disrupting finance, which is desperately in need of disrupting. The various new banks and companies like Wise are dragging the industry into the 21st century, though the incumbents are still failing disastrously.

The problem with fintech is it is about integrity, and cashing out on integrity is generally counterfactual. Like cashing out on Idealism. Well if it's strictly cash, it can be done, like if there's no interest in prostitution of the resources, merely a form of liquidity and cooperation, yes.

But to buy a Lamborghini? Only with an excellent, satisfying reason.[1] Like anything. Are you a man who wants to have sex with a girl who is underage? You can, if you marry her. But she's not an adult, so there's no possibility of a prenuptial agreement, you can marry her if you can accept that.

"Half."

--Eddie Murphy

[1] And not in the way people imagine it, like the hedonism of the noughts, showing off like that horrible show "MTV Cribs." Yeah they're literally cribs, not masochists like a real man ie fasting and running track and field. That's exactly what they are, cribs for babies. And then, on a recurring reddit post, they tell you all those cribs you saw were fake, when really many of them were real--telling you on blogs that "only Red Man's crib was his true living conditions"--just pulling the rug under you. They filmed actual places, they were all different, they didn't have the tech to fuck with that back then. Yeah they rented some houses for a week, but those houses were still meant to be cribs for babies. And it's a demonic show--a demonic channel--yeah it looks like MTV is beautiful but...no yeah suppose they're beautiful, that's the fastest way to learn what's up.

Could you expand a bit? It sort of sounds like you're describing a small town or a social circle / social scene where everyone got involved in some particular altcoin or something and invested a ton of their personal savings into it while encouraging others to do so as well, is that essentially it? Crazy if so.

That’s essentially it, a small town where everyone knew each other and all hung out in the same bars. I didn’t pay attention to which one it was, I do remember hearing crazy interest, like >40%. I think you also got a cut from new entrants as well, so it reeked of pyramid + ponzi.

I'm fascinated that some kind of place like this existed. I've only lived in large cities and the picture I've gotten of small towns from trips and media hasn't prepared me for the idea of a whole community that collectively buys into a get rich quick scheme.

It happens all the time but often the community and the physical community don't overlap, but check out /r/MLM or other similar subreddits and there's whole groups of scammers who target particular groups (church, social, retired, veterans, etc) with particular pitches designed for that group.

Because if some rando tells you to join Amway or invest in AmCOIN™ you will tell them to get bent, but if it's a trusted friend, you're much more likely to be open.

It's disgusting, but it happens. And in a small town, likely everyone goes to the same church or two, hangs out at the same bar, etc. It can spread like wildfire, though usually after the first few scams it becomes known and starts to die out a bit.

Sometimes you recognize the situation and decide to "participate" (read: lose some small amount of money in the scam) to stay in the community.

In the smallest version of this... My weekly poker group talks about stocks and crypto often. It's a mix of guys who work in tech and engineering and a handful who just want to get rich quick. We've all bought a few yolo stocks and coins together and 100% of the time the investments have gone to zero or close to it.

Thankfully no one in the group is dumb enough to go all in on this hyper risky investments but I can see how it would be easy to be talked into something if you're in an echo chamber.

Before anyone gets too worried I'm talking about spending a few hundred dollars each on stupid investsments over the course of a few years.

The danger is when they don't go to zero, and you suddenly thing you're stock picking geniuses - or you then decide to put it all in on the next one.

https://en.wikipedia.org/wiki/Beardstown_Ladies

Amusing quote from that page: “This revelation led to a class action lawsuit against publisher Hyperion, a division of The Walt Disney Company, which settled the case by offering to swap the Beardstown Ladies books for other Hyperion books.”

Considering I'd estimate something like 99% of investment book purchases are "for entertainment purposes" (i.e., the buyer either doesn't read it, or never bothers trying to implement any of it) this may be a decent option.

A common strategy for binary auction scams is to rig the market in your favor so that you think your a genius and then you go all in. Then they rig the market against you or simply block withdrawals.

You can also check out behindmlm.com which exposes most of the more popular scams.

The town is mostly retirees and it was mostly the retirees that got suckered into it. Inflation eating away at fixed incomes and low interest rates undermining their investments.

It happens a lot, and isolation can help keep scams going.

In case anyone has any illusions about how bad financial scamming can get, pyramid schemes famously led to civil war in Albania not that long ago.

https://en.wikipedia.org/wiki/Pyramid_schemes_in_Albania

In Utah "Network Marketing" or more plainly MLM schemes are literally the second biggest industry in the state. Strongly influenced by the Mormon culture you have stay at home moms do direct sales and multilingual missionaries using their skills for that kind of stuff. There's entire software companies that just build tools for MLM companies.

Oh boy, have I got a story for you.

Around 1999, my hometown (pop. ~600) fell for a conman. Like, the actual Town government, and almost everyone in it.

Pudgy, balding, middle-aged white dude breezed into town and seduced the owner of one of the motels. She kicks her husband out and starts taking Conman to town board meetings, etc. Eventually divorced husband.

Guy claims to be Hollywood connected, a wealthy promoter or agent, scouting locations for future filming, etc.

This goes on all summer, and the town manager and county administrator, and the whole board and chamber of commerce totally buy it, lock, stock, and barrel. Conman claims he can bring in some big country music star he knows. I don't remember who. I can't stand country, so why would I remember? Big star. Not Dolly big, but Boot Scooting Boogie big.

He convinced the town to foot the bill, that he would pay for everything once they had the final bill... and this podunk nowheresville town 60 miles from the nearest traffic light pays to fly this star in on a private jet, sets up a huge stage for her, and all like 50 of us that show up get a private concert. It sucked.

This whole time... Everyone in town is talking about this guy, right? And nobody is asking if he's legit. I mean, I did, but I had long hair and was a nobody, so...

Spoiler: he wasn't. Not even a month after the big concert, he disappeared with motel lady's (and her husband's) life savings, and obviously skipped on the million-odd bill for Peggy Rae or whoever TF it was.

Everyone looked like a moron. Motel lady declared bankruptcy and left town. I gloated mercilessly.

Idiots. They all voted Trump, too. Some people never learn.

Wild.

> pays to fly this star in on a private jet, sets up a huge stage for her, and all like 50 of us that show up get a private concert. It sucked.

The concert actually happened? That's the craziest part of all of it.

Should have just bought a monorail.

This should be a movie.

There is out of town huckster in the Simpson monorail episode…

Written by Conan OBrien. Had a Catchy song and had Leonard Nimoy cameo.

https://en.m.wikipedia.org/wiki/Marge_vs._the_Monorail

This is amazing. Do you remember the con man’s name?

This is especially common in churches because in addition to having an existing trust relationship, in many more conservative denominations you also have a large population of women who are expected to be mothers first and working second but are also expected to be the frugal wife running the household like a small business (there are several scriptures like Proverbs 31 which mention this in contexts which make more sense if your household is a small farm & you're selling your surplus). Those pitches explicitly borrow from that tradition and they always refer to it as being a small business owner, which sounds a lot better than working part-time at Starbucks even if the latter tends to pay considerably better, and that's also appealing to the people who see working outside the home as being out in the world exposed to all kinds of dangers and temptations since you can tell yourself that you'll mostly sell to people you already know.

What tends to happen is that the first person who picks up some new scam does fairly well because there's no exact competition for whatever they're selling. They tell their friends, who are likely to join because they made an enviable amount of money, but returns drop off rapidly because most of the people who want whatever that company is selling already bought it from the first person (whose social network overlaps considerably) and at some point most of the money is coming from the people buying the initial inventory which will mostly sit in their garage.

The social dynamic also means that _nobody_ will ever admit that they lost money or made the equivalent of $2/hour even as they're giving away that unsold merchandise at baby showers for the next 5 years.

Cryptocurrencies have largely been the brilliant idea of capturing this dynamic for a different demographic (libertarian men).

There is a recent movie called Dream Horse based on true story: "Twenty years ago, one woman convinced her neighbours to buy, rear and train a thoroughbred racehorse, Dream Alliance. Now their unlikely story is relived in a feelgood film"

https://www.theguardian.com/film/2021/may/30/against-all-odd...

I had similar at work: neverending stories about how crypto will reach Mars and then some. When asked the very basics on certain claims, the answers were always how don't get,how innovative it is and etc. I haven't heard a single word about crypto since it all gone down substantially. Everyone's smart when the rocket is going up, but at some point the fuel ends.

> The real problem is that swindlers have made a huge amount of money and can use that money to corrupt politicians

Yes! It's not just crypto, either, this problem seems to be endemic in our political and economic power structures.

Yea who do you think benefits most from the Fed's printing press?

People in tech

Wat? The fed bought mortgage backed securities, so property owners, bankers, and real estate agents were the primary beneficiaries. Look at who was in charge.

> The real problem is that swindlers have made a huge amount of money and can use that money to corrupt politicians so it affects the rest of us.

Exactly this. Can you imagine what regulatory capture by the NFT crowd would look like?

We're already closer to idiocracy than I thought possible before the last decade, so I'm good without an OwMyBallsCoin

The threat is always systemic risk. That's why we need such a massive and seemingly unfair bailout of financial firms in 2007-8. Or the S&L crisis in the 80s. At some point, other's peoples bad decisions affect everyone else. I don't think the crypto market is big enough to have the same affect yet but it could. And it really shouldn't be allowed to get to that point until the market submits to regulation.

The savings and loan scandal is a great example of this, not that there's a shortage.

I think even larger problem is how we don't correlate the other thread on here right now about how America can't build anything anymore with the over financialization of the society.

The amount of human capital spent on the thousands of hedge funds and financial products the last 30 years is staggering and we basically have nothing to show for it other than unproductive pooling of capital. Given the incentives though it is borderline individually foolish to build anything in the physical world.

I don't even think political corruption is near the worst part. It is the complete distortion of risk preferences and the distortion of what is even meant by "investing".

At least the financial swindlers of old actually laid down thousands of miles of rail in their process of swindling. Now in the name of market efficiency we have a systemic process of trading options on options on options on options in an endless chain to the point the underlie has practically vanished.

At least crypto is honest and doesn't even pretend there is an underlie, just a call option on nothing straight up. Everyone knows that is most of the financial system outside crypto too but with an accompanied financial theatrical performance by the participants. Even complete with Shakespearean bullshit language to make it sound more real.

"I am not trading options on thin air. This is an arbitrage opportunity on a derivatives price that will help to facilitate market efficiency. It is almost like the way a physical bridge facilitates people getting across a river but we don't have to waste years actually building a bridge, take a fraction of the risk of bridge building and the return is 100X better."

I am sure some future Edward Gibbon will come up with a name for this process while writing their historical masterpiece on why the West imploded.

Reminds me of an interview I watched with some hedge fund asshole talking about how they were "creating value" by raising the rent of old people in trailer parks. As if raising the rent of old people in trailer parks is basically like building a bridge across a river.

UK is talking about backstopping the stable coins is an example of influence. I assume they are referring to Tether which hasn't completed an audit.

https://www.cnbc.com/2022/05/31/uk-plans-new-safeguards-for-...

> UK is talking about backstopping the stable coins

London’s talking about regulating and ringfencing them. Not backstopping.

Yes exactly. Having a regulatory regime to resolve a failure and minimise contagion (which is one of the things they're talking about) makes sense and cases like this 3AC one show why. It's not about protecting crypto participants, it's about reducing the damage to the system overall and impact to non-crypto participants caught in the blast radius when something central fails.

Hot take: It’s fine when it happens to extreme hubris with paper wealth. It is not fine when it was someone unsophisticated chasing the herd who lost a meager sum that was meaningful to them. Comedy vs tragedy.

Same thing with Archegos (Bill Hwang) and their rapid failure. It’s the hubris that makes it fun to poke fun, the sun blastin’ Icarus’ wings clean off.

(no crypto exposure)

One of the things I noticed in the whole Terra/Luna drama is that there were lots of people on Twitter who seemed downright confused. People who didn't know where their money went or why. People who had complicated arrangements where their holdings were in the wrong kind of thing to get the 2.0 airdrop who hardly seemed to understand what they were talking about well enough to ask coherent questions.

Those people make me sad. They got fleeced. Maybe they got lured in by the promise of easy money and should have known better, but that doesn't make it pleasant to watch lambs driven to the slaughter.

The other kind, the ringleaders and the ones gloating "HFSP" during more bullish times. That's comedic gold.

Crypto marketing is now so pervasive, particularly in online spaces, that a ton of people just assume it must not be a scam.

I mean there's a streamer I follow and generally like, but that interviewed Do Kwon on their stream, just a few weeks before it depegged. I wonder how many of their followers were the ones that lost the game of musical chairs. The halo effect is real.

And that's not even getting into the craven scumbags leveraging influencer marketing, like Stake.

HFSP = Have fun staying poor

These two things are related though.

The people with the hubris understand deep down that they are involved in a ponzi scheme, and the only way up and out is to herd the unsophisticated investor. Not that there's explicit malice here (though, sometimes it is), but there's the understanding that driving demand is what drives up the price.

There's a reason that so many fad "investments" follow this exact same path, time and time again.

> Hot take: It’s fine when it happens to extreme hubris with paper wealth. It is not fine when it was someone unsophisticated chasing the herd who lost a meager sum that was meaningful to them. Comedy vs tragedy.

I think this is overlooking why people are engaging in these types of investments to begin with: they're greedy speculators who got caught up in a get rich quick scheme. They don't know what this tech is, why it is or isn't useful, or how it works. They don't know what the investment risks are and don't make any attempt at mitigating risk. They don't seek expert assistance. Instead of doing basic research to make informed decisions, they see dollar signs and yolo with their life savings. I don't feel bad for them in the same way that I don't feel bad for people who fall for 419 scams. If you participate in get rich quick schemes that you don't understand, there is a high probability of getting owned. This exact same collapse in value happened only 5 years ago, how could people be caught flat footed twice?

That take is far from hot. Tragedy has two inputs: What happened, and who it happened to.

And comedy has two inputs: pain, and distance

Note that the longer this lasts, the more people are going to get hurt in scams, the earlier it all collapses the more will be saved. It does make sense to be pleased when a societal danger is reduced, not to mention the environmental impact, money laundering etc.

It is in line of 'a death is tragedy, a million statistics.' when thousands of people are losing it in a ponzi scheme, it becomes a matter of memes and I told you so.

Something Stalin may have said regarding the Soviet war dead is irrelevant here.

Hypothetically speaking, if I really did warn someone, and they told me to "have fun staying poor!" or I pointed out the potential for a catastrophic collapse and the founder dismissed it as "r_tarded" and comparable events came to pass...

I say bring on the memes for those people.

That's exactly what I got told. Then there was something about yachts and champagne. Yeah, right

People may not have a choice about being wise or not. But being greedy or not is definitely a choice. Let's not pretend that obscene ROI promised by the cryptoindustry didn't play a role in seducing so many "uneducated" people to put their money into coins. These people deliberately decided to suppress their gut feeling that told them "it's too good to be true" and you didn't.

This is why the industry is functionally begging for government regulation

Worse than paper shuffling about and numbers changing in a computer is when peoples behaviours change due to such foolishness. People who thought they could retire early but should have been continuing to work. People who bought cars and propped up an industry that should have been shrinking, freeing up resources for other parts of the economy to grow. People who built houses with resources that could have been put to better use and which now stand empty.

All that 'ngmi' culture is coming home to roost.

This isn't a bunch of kind old grandmothers getting suckered in by Madoff.

I'm seriously waiting for my grandmother to tell me about how her broker just got her into crypto.

A bunch of Canadian pensioners are in precisely that scenario: https://www.theglobeandmail.com/business/commentary/article-...

Maybe you're feeling that there's a repressed positivity in a lesson learned?

> Prominent crypto hedge fund Three Arrows Capital has defaulted on a loan worth more than $670 million. Digital asset brokerage Voyager Digital issued a notice on Monday morning, stating that the fund failed to repay a loan of $350 million in the U.S. dollar-pegged stablecoin, USDC, and 15,250 bitcoin, worth about $323 million at today’s prices.

In other words, the $670 million that 3AC defaulted on was ~50:50 USDC and bitcoin.

Then later:

> Zhu [3AC founder] is known for his incredibly bullish view of bitcoin. He said last year the world’s largest cryptocurrency could be worth $2.5 million per coin. But in May this year, as the crypto market began its meltdown, Zhu said on Twitter that his “supercycle price thesis was regrettably wrong.”

This seems odd. How does a person convinced that bitcoin exchange is headed to $2.5 million take out a loan of 15K bitcoin if he actually thinks he'll be paying back it back at a higher exchange rate? Either the founder was bullish in principle but bearish in practice, or didn't have the first clue about what he was doing.

> How does a person convinced that bitcoin exchange is headed to $2.5 million take out a loan of 15K bitcoin if he actually thinks he'll be paying back it back at a higher exchange rate?

Part of being in crypto involves suspending disbelief, even your own.

There's also the famous saying "It is difficult to get a man to understand something when his salary depends on his not understanding it". In this case, you don't build a following in crypto by being bearish, ever. It's all about kumbayah and spreading positive vibes in the "community"

It's possible if you are bullish on bitcoin to borrow bitcoin, deposit at a futures exchange such as bitmex or I think FTX and then take a long position on bitcoin of up to 100x the amount staked. !00x is generally unwise but if you are bullish bitcoin you might borrow a bitcoin and then go 3x long on the futures making your net position 2x long. It could even make you a lot of money if you got the timing right.

The real puzzle to me is why anyone would want to make an unsecured loan to such speculators. From 3AC's point of view it may have been a smart bet - heads we are billionaires, tails our counterparties lose.

Update - I came across something on why they would have made such a loan

Voyager was offering the public high interest rates eg. 9% on USDT and 6% on bitcoin and then had to find somewhere to put that money that promised to pay more than that interest so they could make a profit. (rates https://www.investvoyager.com/blog/voyagers-june-interest-ap...)

>3AC said they would pay a high rate of interest, and Voyager took their word for it– because in the minds of Voyager’s principals, there was no other outfit with 3AC’s pedigree that could absorb the amount of capital that needed to be shipped out the door. https://entrepreneurshandbook.co/number-three-511f334d8fae

So basically they lent the money because it was other people's money and they could make a profit as an intermediary.

One reason for taking a 50:50 position in DeFi would be for AMM liquidity pools, which make "money" on the AMM fee and also open the door for arbitrage opportunities on the spread, as well.

If you're bullish on BTC, you might want to become a provider for a USD(C)->BTC LP. Assuming the price of BTC goes up, you will naturally end up with more USDC as a result.

I think you would have to know more about how the deal was structured before making these assumptions. You could hedge out directional risk in an asset while borrowing it. I think it's doubtful this position was net short bitcoin.

Or you are right, they were unbelievably naive.

I think option #3 is the most likely one - they didn't actually believe what they were saying.

3AC was active in alt coin trade. They definitely knew what they were doing, they have been trading crypto since 2012. They were probably temporarily shorting it on a rotation trade. They got blown out bad by the Luna debacle and then dragged down with it.

I really don’t understand the business model of making massive fiat loans to “firms” to buy bitcoin. If crypto goes up, you get a small amount of interest. If crypto goes down, you lose everything. What? Lol. Just spend a fraction of the sum on bitcoin and do something safe with the rest. What was the plan?

Edit: I guess when someone has “20 billion dollars” a 700mm loan doesn’t seem like a big risk.

I think a lot of these projects are less rational and more ideological. People are desperate for applications of crypto, because the survival of the ecosystem depends on it, so they’re willing to chase down high risk / low reward ventures to keep the music going.

Firms like 3AC exist only to funnel as much money as possible into the crypto economy, most of it raised from ultra-high net worth individuals that won't miss this money at all. They place huge bets, because it's a land grab and the folks that work there got paid already.

> Just spend a fraction of the sum on bitcoin and do something safe with the rest. What was the plan?

On the other hand, I can see investing in firms that then take out huge loans to buy crypto. The math reverses itself. Crypto goes up, and you make far more than buying BTC without leverage. Crypto goes down and you lose your entire investment, but are limited to that (as opposed to taking out the loans yourself).

I suppose if they felt the loans were collateralized by something that was more solid than crypto, that makes sense. Like, yes I'll loan you money backed your MSFT shares or whatever, and you can spend it on crypto or whatever.

It's called picking up pennies in front of a steam roller.

Also “picking up nickels off of railroad tracks.”

It’s very seductive. I like the railroad tracks analogy because in my real-world experience, railroad tracks can be seldom-used, and look like they’ve been abandoned. But every once in a while, something does come driving down it, be it a full train or maybe a pickup truck outfitted with bogeys, belonging to the company.

But only once in a while. If you don’t see one for months, you convince yourself you’ll never see one.

Perhaps they also own a lot of bitcoin/crypto and the goal of this investment is to prevent the price from dropping (due to firms going down).

A better firm would have performed better, regardless of what happens to crypto. Short selling should be a part of any sophisticated strategy. But this firm bet the farm on the price going up. I thought hedge funds were smarter than that, bit apparently not this one.

If it goes up, I gain money. If it goes down, you lose money. They’re gambling with someone else’s cash and keeping the winnings

Similar to CDOs in 2008 the risk of staked Eth was not well understood.

There's probably enough collateral involved that they come out ok either way. In other words you'd secure the loan against some bitcoin you already have that's maybe worth 2x what you're borrowing. So now you're holding 3x that amount. Ideally bitcoin goes up, you sell, then repay the loan and take profits.

If btc drops too much, you need to dump your coins and repay the loan.

My guess anyway.

The people making the loans are also speculating on crypto with other funds. The loans exist to pump the price up by fooling "technical" traders. It's market manipulation.

I think using the word 'traders' for these scammers is generous.

Should reddit be allowed to present financial advice via their forum.

That to me is a problem. Free Speech or financial system rules.

People can say things on a forum with no repercussions. True or not.

AMC is a shit stock now and it was 5 years ago. Gamestock too.

Elon Musk says one thing wrong and is attacked by SEC. Not fair at all.

Crypto should have been snuffed out by regulation many years ago.

So anti regulation for Elon, pro regulation for crypto and Reddit. That's definitely a weird take.

> As of Friday, Voyager said it had approximately $137 million in U.S. dollars and owned crypto assets.

> Last week, Alameda (FTX founder Sam Bankman-Fried’s quantitative trading firm) committed $500 million in financing to Voyager Digital, a crypto brokerage. Voyager has already pulled $75 million from that line of credit.

Am I misunderstanding something, or: what kind of mismanagement could possibly lead to loans being given out to a single entity representing, like, over 70% of the entire value of your organization (pre-default)? Its excellent that FTX/Alameda stepped in to keep them solvent and not allow this to spiral further, but at the same time, its incomprehensible to me that Voyager allowed this to happen; so incomprehensible that it feels like I'm misunderstanding something.

My understanding is that FTX probably holds a ton of cryptocurrency assets or is invested in other companies with cryptocurrency exposure and does not want a 'contagion' to spread. This might work, but I am not sure FTX has enough assets to stop it, for a similar scenario https://www.federalreservehistory.org/essays/ltcm-near-failu...

I think it’s a strange part of human psychology to ignore objective reality and double down to complete ruin. It seems remarkably common and with corporate power being so concentrated at the top it seems rather easy for these situations to happen.

I think the reason is that safety nets our system provides to big businesses (especially "too big to fail" ones) incentivizes them to take risks. If you have a 50/50 chance to strike gold or loose tons of someone else's money, why not take it. If it pans out, you get a lot of bonus $$$, if it doesn't - it's no skin off your back.

I see this in my industry. Above a certain level there isn’t really a failure state that matters to an individual.

Yes, it’s the throwing good money after bad problem. I think there’s a real name for it, “sunk cost” fallacy maybe?

I'm thinking "lender of last resort"

most crypto trading firms have been rewarded for this behavior over the last few years, so the lesson is hard to unlearn

Those crypto assets might have been worth a lot more when the deal was made. And the interest rate is probably pretty high.

Is it mismanagement? It's head-I-win-tails-you-lose. Why would Voyager be playing a radically different game than 3AC? That kind of leverage can mint a billionaire if the dice roll the right way.

Stepping in to support the wages of mismanagement may not seem so excellent if the situation worsens further

It's the lure of money. You did something, it worked, you made a killing. Very tempting to do it again (give 3AC more money etc etc).

I'm sure this doesn't apply to many here here, but: Do not trust leverage-trading crypto banks. Do not trade on leverage. These systems just recreate our current system of debt-based money that will inevitably collapse when the easy money dries up.

If you believe Bitcoin has a future like I do, then buy some Bitcoin and hold it in cold storage for a long time, or try to jumpstart a circular economy where you use Bitcoin to buy and sell goods. Don't try to recreate the current system with fake decentralization.

Notice that this guy used the lexical domain of religious belief. Not even trying to explain why, just "if you believe, come to my church".

This is a goofy response. Belief isn’t a religious word. I could write an entire treatise on Bitcoin in my comment, but no one would read it, and besides that, the audience of my comment are people already convinced of its value.

For anyone else enjoying the crypto meltdown, might I suggest the subreddit /r/buttcoin? It's quite enjoyable.

https://old.reddit.com/r/Buttcoin/

It gets old quick. I remember joining when bitcoin was around $100 and it looks exactly the same now as it did back then.

> It's quite enjoyable.

Not really, it's full of people hating and insulting and pretty much comparable to the average crypto bro subreddit.

Even if it is trolling - that's orders of magnitude less harmful to society than a subreddit that offers dangerous financial advice.

Also less harmful than promoting the latest single waste of energy the world has ever seen… yet.

where are they promoting war?

Except we have nothing to sell you.

After looking at it for a moment, it's equally delusional as /r/cryptocurrency.

I'm enjoying the meltdown because it flushed out those who believed in nonsense like 'This isn't even close to what will be the all time high' [0] 'Doge to $1 by September 2021' [1], etc. Where are they now?

I won't be surprised to see Bitcoin go lower than $10K. This is before regulations and the Tether scam collapsing.

[0] https://news.ycombinator.com/item?id=26840923

[1] https://news.ycombinator.com/item?id=27046019

> After looking at it for a moment, it's equally delusional as /r/cryptocurrency.

There can be some serious discussion there but it's first and foremost a joke subreddit. Without knowing what you're labeling delusional, there's a good chance it's meant to be taken with a sense of irony.

A joke sub wouldn't have a detailed guide for how to productively disagree with its followers:

https://www.reddit.com/r/Buttcoin/comments/p8uv0h/helpful_gu...

Be careful not to get snared by Poe's Law.

I don’t think tether is going to collapse. The money is there and the demand is high.

Nobody is trading suitcases of fiat bills behind closed doors anymore, it’s all in USDT.

Can you point to a source for "the money is there"?

Nothing surrounding Tether passes the smell test.

theyve been telling us crypto has been melting down and bursting and dying for a many years, its still here. my bet is that itll still be here in ten years and theyll still be posting on buttcoin.

seems much more interesting to explore, hack, risk, and learn by playing with crypto, id much rather to that than post "bitcoin ded" for a decade.

prices go up and down, culture persists.

Celebrating another person's failure is for small minds.

What would you call "have fun staying poor"?

We all do it pretty much all the time.

Whether we're talking about hostile governments we don't like. Companies we don't like. Groups of people we don't like. We make jokes about them all the time.

It's just crypto's turn.

No need to go there when 99% of HN comments provides the same material. And I wouldn't call it enjoyable. The comments are the same as when Bitcoin was $100. Frankly, I'd call it ignorant.

Off topic, but that subreddit logo is patrician.

Why would u enjoy people losing their life savings? Just because they told you to have fun staying poor on the way up?

I think people can be interested in how something plays out without “ enjoy people losing their life savings”.

I don’t mind seeing some of the pyramid schemes and such revealed for what they are.

I like to think everything plays out and for a while more people don’t risk and loses their money and maybe some bad guys go to jail even.

I don't think anyone should act hateful to anyone else. However, seeing that specific bubble deflate though, and a return to, I don't know, sanity, is a welcome change. It's just a shame that so many people have to suffer though as a part of that process.

It’s also, quite frankly, the market reallocating economic decision making power. After a decade of beanstalk economics, it’s reassuring to see the system at least attempting to correct itself.

I have no sympathy for the people losing money. For the young people who invested precious years into what increasingly looks like an economically useless skill set, I feel badly. That said, those who picked up technical or sales chops can likely pivot to a position above the median American’s wages.

People with crypto coins needs other people to be willing to buy them at higher price just slightly later. They keep exploiting fomo for their own gain. I don't think this is moral and a bit of karma is always welcomed.

This isn't necessarily true. A lot of people have held crypto since you could purchase it for single digit American dollars because they believe in the fundamental tenants of crypto - permissionless world financial exchange where the levers and dials of the economic systems are not controlled by world governments.

If they believed in crypto as a unit of financial exchange, wouldn't they be actually using it for transactions instead of going full-HODL?

Cuyrrently (and at a few points in the past) it's a little hard because the value of crypto is fluctuating so wildly but a lot of early adopters have continuously been using and advocating adoption of crypto for a decade now.

The moment Target start accepting Bitcoin/Lightning payments, yes, I'll be buying all my groceries via that thank you.

It is probably true that 99.9% of people with crypto use it as a speculative investment. The remaining 0.1% true crypto idealist may exist, but I have never met one. So it makes the previous statement very much mostly true.

This type of disingenuous argument is why some of us rejoice at the crypto meltdown.

Most people in crypto I know like crypto and the cool tech it is developing, and also want to make money. What is wrong with that?

There's nothing wrong with wanting to make money. The problem is that many (most? the vast majority?) of the ways to make money with crypto are basically pyramid scheme-type scams.

Pleased to meet you jpambrun!

I am one of those 0.1% idealists.

Can you name me a single good or service priced in BTC? If it's not a unit of account it can't be a store of value.

My mate bought some beers for 87k sat the other day. A family member spent 40k sats on groceries a few months ago.

I’m actually tracking it for art

As am I!

Same with most company shares

You are wrong. No value can be added to crypto except through fiat deposit. Publicly traded companies create value by their activity. For example, if I own a share of AT&T, the value of that share goes up if AT&T runs a successful marketing campaign to get new users to sign up.

Crypto has no utility and no underlying value.

Not quite! Shares of AT&T go up because people spend fiat on buying them. The activity makes it a more attractive buy, but unless the company buys back it’s own shares they don’t go up when they make money. It’s not magic, it’s a market like anything else.

Note: AT&T is a dividend share, so it has yield. Cryptocurrencies generally don’t, they are more like tech stocks. Amazon shares don’t go up when Amazon makes money (unless they spend earnings on stock), or the market buys more Amazon stock.

That's not the full story. A company's share price drops when it pays a dividend - because it now has less money. So when a company makes money its share price does go up.

SharePrice = CompanyValue / NumberOfShares

Now it's true that trading activity can affect the share price too, for example a short squeeze. But this is due to market taking advantage of a desperate buyer rather than anything to do with the company's performance as such.

I think it is the full story. Company performance is the driver, but it doesn’t set the price. It not right to say it’s irrelevant, it is, but the most important thing is what the market is willing to pay.

The dividend price drops occurs only because the market believe this and reduces the price of their orders. It’s driven by the market responding to the loss of cash, the fact the cash was spent cannot impact share price unless there is buying and selling. The company doesn’t set the share price except for IPO.

It is compounded by Dividend Reinvestment Programs, where the dividends end up buying more stock.

Additionally, I think your equation is wrong. Company Value = assets - liabilities.

Market cap = n shares * price.

Market cap != company value.

Big tech stock is very similar to cryptocurrency. It’s all about the greater fool who will buy it from you.

> It not right to say it’s irrelevant, it is, but the most important thing is what the market is willing to pay

That's what he's saying, just he's a step ahead of you. Why is the market willing to pay that much? Because that is what they see the company being worth in the future. Repeated studies consistently the correlation between stock price and future returns to investors when adjusted for other factors that might shift value away from the investor (eg, bad governance, risk, etc). There is no predictor that is better (this is important part - its comparisons against other indicators when trying to predict the future - bc predicting the future is kind of difficult).

> Additionally, I think your equation is wrong.

market cap is forward looking. balance sheet value is backwards looking. market cap is also a guess on how much is returned to investors and not taken by other factors - legal, illegal, intended, or unintended.

Viewing the market as irrational is essentially an anti-science stance - its religious. There is no way to prove that belief wrong because people just keep saying its being irrational when it disagrees with their valuation.

And I would feel the same if a massive amount of people were pushing for it, were deceptive and exploitative about it.

There's a subreddit for that too!

https://old.reddit.com/r/gme_meltdown/

Yes! GME stock was exactly the same and just as scummy. Thanks for pointing that out.

Shares have dividends and represent a share of ownership of the underlying book value. The book value of a bitcoin is $0. Shares also come with a vote.

> Just because they told you to have fun staying poor on the way up?

I mean, yes? The level of hubris so many crypto bros exhibited was truly incredible. And if that weren't enough the negative externalities (the truly shockingly wasteful nature of proof-of-work mining, the diversion and scalping of GPUs) should make anyone glad that the bubble burst.

Because you’d have to be a real dumbass to actually put your life savings in crypto.

When I first bought crypto, I put in just enough that if I were to lose it all, it would mean one vacation less and a fewer more meals at home for a few months.

The returns are absurd enough that a $10k investment can be life changing. Anything beyond that is just greed and stupidity.

>Because you’d have to be a real dumbass to actually put your life savings in crypto.

Not all the scams are that obvious. Once a company has a lot of money, it is assumed they have some stability. Celebrity endorsements don't hurt either. There were even stadiums named for the stuff. And Stablegains said in large print that the investments were diversified while the small print said they were putting everything into Luna and would diversify later.

$10k can’t even buy a car. I don’t know where you are in this crazy world but where I but $10k isn’t life changing, it’s more like a month of fancy dinners.

I guess I’m a real dumbass. :-)

he said the *returns* can be life-changing, not the investment.

some people 100xed on crypto

Some even did better than that ;-)

My life is completely unchanged. I still work everyday.

I work everyday too. But not having debt and enough cash cushion to do nothing for years gives you a sense of freedom and confidence that can help you make life changing decisions.

True. I was able to make riskier investments knowing that I would be able to eat if things went badly.

I’m just waiting for the collapse of civilization now myself.

most who were active during 2018-19 before the current run 1000xed. Many lost 80% of that but are still wildly in profit.

Most of the good traders I know managed to cash out 30-90x. All within two years.

For a lot of people, losing $10K is life-changing

$1.50 can also be life changing when someone does something stupid over it.

Ahh, I see you just watched "Web of Make Believe" too.

It's a common human trait to enjoy when bad things happen to bad people, and crypto bros are the worst.

Maybe because crypto is burning enormous amounts of fossil fuels at a time when humans are literally destroying the biosphere and for 90% of people involved their motivation is speculation and greed (get rich) not technology or real world applications.

So you finally got to the root of human nature, you're clearly disappointed, and this is your response?

Being happy at the prospect of reduced energy consumption is a reasonable and appropriate response.

That greedy people took a high risk investment in something purely speculative and lost money is inconsequential..

Always sad to see, but these people actively perpetuated falsehoods about things like regulation. Go look at a celsius thread on reddit when NY said it must cease operations in NY.

>Just because they told you to have fun staying poor on the way up?

Yes. Frankly these people need to have a check to their egos.

Mocking people who just want a return on an investment but don't understand what cryptocurrencies are and falling prey to arseholes (correctly) assuming they are a Greater Fool is definitely in bad taste.

But the people who went "Line goes up, stay poor, I am very smart" despite the warnings they were engaged in a scam... yeah, I have no sympathy for them. They're the get rich quick, fuck you I got mine libertarians who deserve to be taken down a peg or two.

If they banked their future on libertarian magic beans fueled by wasting a mid-sized country worth of power e-waste, and each time you mentioned the obvious flaws in their half-baked schemes they made fun of you, implying that you're 'not going to make it' and telling you to have 'fun staying poor' -- yep, a little. In the abstract of course.

When this crypto thing turned into a ponzi scheme, it was already guaranteed that many people would lose everything. We can only hope it collapses earlier so there are fewer victims.

It was never anything else

Bitcoin's original goals and a ponzi scheme both require collective belief in a fiction, but they are distinct fictions.

Bitcoin requires its users collectively believe it has value and others will accept it for some value - this is necessary in order for mining to be profitable thus hashing power be dedicated to protect the blockchain.

A ponzi scheme requires that more people will be buying in at increasingly higher prices.

Notice the former does not assume anything about constantly rising prices. The original vision of Bitcoin actually works better if the price itself remains stable (not rising).

A fall in price doesn't mean that people are losing their savings. They might be short and thus gaining savings.

This has been a slow motion trainwreck across crypto twitter (echoed sometimes in financial publications) and this is the first mainstream source out there. Finally.

I definitely would like to see more things about specific organizations. Indictments about crypto as a whole just allows poorly run organizations to avoid scrutiny.

Now if only there were mainstream news articles about all the things that go right in crypto.

Its so peculiar and easy to tell when people have never considered anything aside from a barrage of negative headlines. Reminds me of the 90s when an older person at the time would say like "the 'puters always get viruses" as a reason to not explore the concept further, as if that was the whole experience.

> Now if only there were mainstream news articles about all the things that go right in crypto.

Legitimate question. What things have gone right in Crypto? I'm excluding individuals getting rich as that can happen due to gambling, etc.

> I'm excluding individuals getting rich as that can happen due to gambling, etc.

The tools that allow that stuff to occur onchain are pretty phenomenal. Bridges, farms, yield aggregators, yield optimizers, AMMs, the rapid evolution of standardized classes in the codebases (really was a mess before OpenZeppelin). It is capital formation and that is valuable for many people, a lot of capital formation improvements in tradfi never caught on for failing to address more important pain points people encountered.

For the aforementioned tooling, many of these services get hacked and take a lot of the capital inside of them, and many of them function really well and still are to this day. The velocity of permissionless deployment lets the market/conscious quickly see which ideas work well, and become a building block to try something else with. (I say "conscious" because the developers often aren't the market).

The best example of a recent reporting asymmetry would be all the stablecoins that aren't failing, functioning seamlessly, and what can be done to improve even them for a model stablecoin. Reporting about active proposals and the progress being done. This stuff is reported, just not in mainstream news sources and it would be an okay fit as some of them also have dedicated crypto sections already.

Another example would be the function of the insurance pools, or loss mitigation measures that work well preventing or during or after an attack.

Most of what you mention seems to be loosely related to fintech. There's nothing wrong with that but it doesn't match your previous comparison to the internet.

If phrased in reverse, what would you lose if you lost the Internet? Now, what would you lose if crypto as a tech disappeared? It seems more akin to a niche technology than a transformational one (at the moment anyway).

I compared it to the 90s not the internet

I would lose a permissionless development platform that allows me to pay once for deployment and have to cover no overhead costs from then on, because all the compute nodes are pay once host/execute indefinitely with free read privileges

I dont have an alternative for that, when deployment is done the payment is in crypto which regulates the complexity of the deployment, and other overhead costs are covered by the consumer who also pay in crypto which regulates the complexity of the operation to attract consumers

Competing compute nodes are much more complex and have much more complex pricing models and compete primarily on how arbitrary those pricing models are

I doubt your claim about stablecoins like Tether will age very well.

The problem with his argument about stablecoins is he didn't actually mention Tether, he just said whatever isn't failing. So basically after Tether fails the goal posts are moved and now all the stablecoins that haven't failed yet are held up as an example of success.

Speaking of Tether, it's lost 25% of its market cap since May.

https://coinmarketcap.com/currencies/tether/

Yes, through redemptions. So we know $10s of billions is real — at least!

It’s a stablecoin, so market cap is simply the amount printed.

Keep investing in that hopium, cryptobro.

I prefer “Bitcoiner”, I’m not into ‘crypto’, bro.

HN needs more parody accounts. Thank you for your service.

The problem is that if Tether is under-collateralized, redemptions bring it closer to bankruptcy.

I wasn't referring to Tether

What were you referring to?

Magic Internet Money ($MIM), and yes its name is a meta-meme meant to cause consternation of people that don’t matter

I would personally improve some UX and governance and less relevance of the team’s reputation, but its working

I like that the collateral is all interest bearing (backed by volume and transaction fees of their respective protocols), and pays off their debt over time

MIM creation privilege is too conservative for my tastes, but redemptions based on sentiment and collateral asset value has been seamless. Its pretty much what MakerDAO/DAI would have been if MakerDAO wasnt launched in 2017 and instead in 2021

I think there is still opportunity for this style of overcollateralized stablecoin to be done even more autonomous and better.

I like the idea stablecoins that cant freeze balances in addresses and also aren't collateralized by a balance at a bank or brokerage firm, the ones using onchain interest bearing collateral are the best model so far. Just need to improve creation and goverance and relevance of the team.

One example: Ukraine's military has been using bitcoin to pay their suppliers. The bitcoin network is antifragile and not vulnerable to attack the way their traditional banking infrastructure has shown to be.

When searching I mostly found results on crypto news sites (naturally), but here are some mainstream sources:

https://time.com/6155209/ukraine-crypto/

https://apnews.com/article/russia-ukraine-cryptocurrency-tec...

There's no real problems with donating fiat to Ukraine, you can send money to them no problem.

https://u24.gov.ua/

As far as I can tell the reason they bought a bunch of stuff with crypto is because crypto fans gave them a bunch of crypto, not because they need to route around actual problems with the banking system.

Of course Ukraine would make noises about how much they like crypto, because anything that encourages crypto holders to donate is good for them. Even if they prefer fiat they probably won't complain- making crypto donors feel good about giving them money (because it is acting as an advertisement for crypto generally) is a good idea for Ukraine.

Ironically, getting money into/out of Russia is probably a better use case for crypto[1]. But most crypto backers don't mention that since it makes them look like the villain.

[1] https://www.nytimes.com/2022/02/23/business/russia-sanctions...

Sure, there's no problem donating now 5 months into the war. But what about when the war just started? How would someone from the U.S. be able to donate money and be confident where it was going? It's not like the Ukrainian govt had a well-known paypal address.

How can you be confident where a BTC payment is going? Did they have a well-known BTC address? If it's a matter of a .gov.ua website posting a wallet address, that's not obviously better than a .gov.ua website posting an IBAN.

To be clear, the Ukraine government posted payment information by March 1st:

https://bank.gov.ua/en/news/all/natsionalniy-bank-vidkriv-sp...

No. This was not a problem. The ukrainian central bank and ministry of defense both had official announcements and publicly posted account numbers for swift/iban transfers to accept private international donations. These were setup and directly collecting funds within days. They raised millions of dollars, directly to operational accounts, in short order.

You are tilting at a windmill.

"Within days", when your country is being attacked now is a significant delay. No one is saying that the banking system failed Ukraine, but there are times when speed is essential and any delay is costly. Cryptos value is shown in such cases.

Ukraine's Twitter account tweeted a link to an official webpage with fiat donation instructions February 24, the day the invasion began:

https://twitter.com/Ukraine/status/1496817739419295751 ( https://archive.ph/Q1y7l )

It tweeted a BTC address on February 26, but it took a little while before people were sure they hadn't been hacked:

https://twitter.com/Ukraine/status/1497594592438497282

This is really missing the point. But OK, and how long does it take for an IBAN transaction to settle such that the money is spendable on the other end? Days?

https://www.yahoo.com/video/ukraine-government-using-crypto-...

> Chobanian says vendors are stepping up to accept crypto in exchange for supplies and crypto is proving to be more efficient than traditional payment methods.

> “It's really difficult to [send money] using traditional methods. First of all, it takes a lot of time. Secondly, it's a lot of bureaucracy and so on. Here, we are really fast. So we receive money and we spend it almost immediately,” Chobanian said.

https://www.yahoo.com/video/least-14m-26m-donated-crypto-215...

> “We're doing it really efficiently,” Chobanian added. “The majority of spending is actually done in crypto.”

Of course he would say that it's super-efficient and better than using existing banks, Chobanian runs a crypto exchange.

It's impossible to imagine a crypto exchange founder saying anything different.

> The bitcoin network is antifragile and not vulnerable to attack the way their traditional banking infrastructure has shown to be.

The traditional banking infrastructure works just fine in Ukraine. You can send money in and out.

That may be true right now, but their banking system has had a lot of downtime this year.

https://www.wsj.com/articles/how-crypto-is-helping-ukraine-r...

> He noted that since “the national bank is not really operating, crypto is helping to perform fast transfers, to make it very quick and get results almost immediately.”

>Now if only there were mainstream news articles about all the things that go right in crypto.

"Actual value to society of crypto finally discovered!"

No, wait, we'll never see that headline.

Article has a refreshingly neutral tone. I wish all news were like this.

I particularly like how they neutrally listed all the assets and lines of credit of Voyager Digital (the loan holder) without mentioning that they add up to just $655M (< $670MM), meaning that they are now insolvent.

I don't think defaulting on a loan means you're going to pay $0.00 on that loan, just that you've missed a payment (plus whatever grace period is given).

Default means that you are or have been technically deemed incapable of making any further payments. This includes repaying the principal outstanding.

You're confusing any potential amount ultimately recoverable in insolvency with some kind of imaginary ex gratia payment by a management of a imaginary going concern which absolutely doesn't exist in Ch.12. Its chapter12 in the circumstances conceived.

> Default means that you are or have been technically deemed incapable of making any further payments

Nope, that's not correct. Loan default occurs when a borrower fails to pay back a debt according to the initial arrangement - it most assuredly does not mean that no further payments will ever come (or be extracted via judgement).

To expand a bit more. At least in the SOPs that I wrote, is a loan declared default if a repayment of (interest and/or principal) has not been received after a certain cutoff (30+, 60+, 90+) or the company has been declared bankrupt, dead, or similar (hard trigger events) For the latter, this is why petitions like these matter: https://www.reuters.com/business/china-evergrande-faces-wind...

lines credit aren't assets, they don't add to assets, except in the sense of short term liquidity. They don't create solvency.

They are deeply insolvent because their lines of credit are far in excessive of their assets.

Another Big Crypto Player Just Blew Up - https://news.ycombinator.com/item?id=31794111 - June 2022 (4 comments)

Three Arrows Capital reportedly facing insolvency - https://news.ycombinator.com/item?id=31784602 - June 2022 (377 comments)

Battered Crypto Hedge Fund Three Arrows Capital Considers Asset Sales, Bailout - https://news.ycombinator.com/item?id=31777441 - June 2022 (125 comments)

Crypto hedge fund Three Arrows fails to meet lender margin calls - https://news.ycombinator.com/item?id=31769163 - June 2022 (1 comment)

Rumors Swirl About Financial Stress at Three Arrows - https://news.ycombinator.com/item?id=31748345 - June 2022 (2 comments)

If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem. J. Paul Getty.

A Civ VI fan, I see.

Will this force any other leveraged positions out? Really unclear what the ramifications are besides potentially dissolving the hedge fund.

Crypto hasn't dropped too much as a result (~2% drop)

I am confused: The only logical reason to borrow BTC is if you think it will go down. If Three Arrow really thought BTC was headed to 2.5m a coin, then they could never sell/spend the coins they borrowed, as the price of buying back to repay the loan would be too high.

So logically they must have been shorting BTC.

And if they were shorting BTC, they should have made ~30% profit in the last few months right?

So what the fuck is actually happening here? Were they lying about being bullish on BTC? And they somehow made an even bigger loss somewhere else that means their BTC short isn't enough to counter that? Or what?

You can borrow btc then use that btc to take 5x leveraged positions on btc.

If number go up, you make billions. If number go down 20% you default on loan. Absolute scumbag behaviour of course.

I guess that makes more sense. But then you're only 4x exposed to BTC (god help you). Why not borrow USD and do the same and get 5x leverage

What's that thing about if you owe the bank 10k you're in trouble, but if you owe them 10m they're in trouble? :)

I wonder whether it could be as simple as getting a loan in USD requiring stricter terms: he seems like the kind of guy who’d balk at doing more work to get less money, even if that’s ill-advised from a risk perspective.

Because BTC kept going up fast, and your 4X BTC bet meant you got keep borrowing more to plow back into BTC.

3ac probably made 3 bad trades:

- long ust/luna

- long gbtc, short btc

- long steth, short eth

will focus on last two trades in this comment.

gbtc is like a bond that eventually pays out as btc when regulatory approval comes.

steth is like a bond that eventually pays out as eth a few months post-merge.

but in the aftermath of the luna/ust crisis and general crypto bear, there was a flight to safety (gbtc is less liquid than btc, steth is less liquid than eth), causing the gbtc/btc and steth/eth spreads to widen instead of narrow, and 3ac was caught out of position.

tldr: they probably profited some from short btc but lost more on long gbtc.

This doesn't have a whole lot to do with crypto really. The entities discussed in the article are all traditional investment funds who made some risky bets.

That’s like saying that banks making risky bets on CDOs in 2008 had nothing to do with housing

i think what they're trying to say is that these firms just look like traditional trading firms, not like defi. opaque backroom billion dollar handshakes go wrong, contagion spreads, ltcm/2008 style.

main difference- there's no government bailout coming.

There'll be a bailout. They don't let the rich folks go poor.

there might be some corporate firesales, but what makes you think any government is going to backstop the crypto market to prevent contagion?

In what was that risky bet?

Without crypto what will be the next delusional get rich quick scheme people will cling to?

At least in the US, there are two sorts of schemes that people historically cling to: there's the goldbugs (who hoard precious metals because of the dollar's imminent collapse - any day now!) and the Amway types (who buy into pyramid cough multilevel schemes thinking that they'll ultimately profit off of their social circle).

Cryptocurrencies merge these two groups of chumps into one group of hyper-chumps. So it stands to reason that many will go back to the old schemes which, arguably, is an improvement in the state of affairs.

What if crypto (in whatever form) is the ultimate get rich quick scam/scheme and there is always a baseline number of people willing to dump their money into it? Can an asset class be built on top of a seemingly endless hope of people hoping to get rich quick?

Take out the asset class part, and it sounds a lot like a lottery, which is just a regulated get rich scheme (where most participants lose monetarily, but get "entertainment") that turns a reliable human fallibility into a social funding mechanism.

Take out the social funding, and you have casinos, which also provide entertainment in exchange for the feeling you might get rich quick. Casino companies are publicly traded securities: https://www.cga.ct.gov/PS95/rpt/olr/htm/95-R-0426.htm

Is there a form of crypto that could provide the same?

The downside with the lottery is that it's state controlled; if a group of talented engineers finds a way to play to extract positive expected value from other bettors, stakeholders in the government will call this outcome unfair and shut it down ( https://www.mass.gov/doc/letter-to-state-treasurer-steven-gr... ). Even if, on average, money goes from gamblers to social good, people will complain that sophisticated bettors are extracting an "unfair" profit.

By contrast, the crypto markets provide an efficient funnel from low-information gamblers to sophisticated engineers. As long as a fair chunk of the profits are channeled to effective altruism causes (which I think is the status quo?) it's a good deal.

> As long as a fair chunk of the profits are channeled to effective altruism causes (which I think is the status quo?)

That's one heck of a qualification without a citation. The "altruism causes" channeled to would need to somehow outweigh the massive costs in terms of CO2 footprint and the loss of savings/security of an untold number of regular people (your "low-information gamblers") who bought into a big ponzi scheme.

They can't be made whole (though society will definitionally pay for the subset who lost a significant portion of their life savings), but seems pretty legit to point a finger at those who scammed them.

Could be anything.

Real estate is a sensible investment, but a housing bubble makes it a delusional get rich scheme.

Combine the most reasonable investment with a lot of easy leverage and you get a delusional get rich scheme.

Any news on Evergrande? I thought the world was supposed to go under last year ...

The thing about that is the Chinese government can just declare it’s no longer a problem and then it’s no longer a problem. Just like they can solve Covid outbreaks through starvation, separated families, and doors welded shut. When you’re free from morality or repercussions then all problems are easily solvable.

They can't really do that because Firm A may depend on Firm B's payment to stay afloat. So you can't just say Firm B doesn't have to pay A and all is well. Also if a Firm defaults on its debt obligations, nobody will choose to lend to that Firm in the future.

Certainly it still may be possible to untangle the situation by shifting losses to those who can bear it (socialize them), but it's not as simple as you make it sound. Have to work out a whole graph of dependencies.

Lehman Brothers had something like $50T of value in underwater derivatives. Good luck solving that

Many problems aside, they could just print or give money.

Yeah, check with South America on how that works out. It can be done to a certain extent, but obviously these aren't cost free solutions.

South Am governments are dependent on banks in other parts of the world.

The Chinese government is not.

There's just some realities about global economics. Uruguay, Portugal, or Rwanda default, then they have a problem. China or US has the same issues, and it's just not the same kind of problem. They would just redefine things so that they don't default and then call the whole thing a "bailout". I'm not ragging on south americans or africans or portuguese, I'm just stating facts. It's not fair, but that's how the global system works.

You do business with China or the US, you find out fairly early on that even in a crisis, it's their way or the highway.

You don't seem to understand that it's not that simple. If the trail of dependencies in the system is deep and highly leveraged, it doesn't matter if the government "wills" it to be one way or the other.

Economies and companies are highly interconnected. There is no magic wand to fix the problem without serious repercussions, even with an authoritarian government.

You wipe out USD debt holders, they will never lend to your companies again. You print money to pay off debts, you get inflation, weaker currency and potentially other destabilizing outcomes, like moral hazard of private sector expecting bailouts.

All debt problems can be solved via arbitrarily high inflation, yes. But it's also the setup for mass suffering and potentially revolution.

They can also export at least some of their financial pain to their belt and road "clients". Sri Lanka comes to mind.

Many Chinese property firms are distressed now, it remains to be seen how it ends.

Here's an Evergrande bond that's trading at a 90% loss, implying chance of total failure/default is quite high: https://markets.businessinsider.com/bonds/china_evergrande_g...

Of course, the Chinese government has a lot of power to try to socialize the losses and salvage things. When you have a spiderweb of liabilities that are jointly depended on, it's difficult to intervene and find a clean resolution, despite the gov having the authority to do so

https://www.reuters.com/business/china-evergrande-faces-wind...

Good. Looks like this cycle has claimed tons of over leveraged VCs and deluded crypto bros and maxis thinking that Bitcoin will reach $100K last year. Instead they all got liquidated.

We were overdue a wiping out of these gamblers and speculators as regulations will be formed to limit or prevent having another UST, USDD and Celsius.

Either way the smart money takes advantage of the hype and prepares well in advance for the great possibility of a crash.

USDD isn't like Terra. It's not actually an algorithmic stablecoin, it's just 'His Excellency' Justin Sun messing with people. There's no redemption mechanism (which is what lead to the UST collapse) and the creation is limited to a few authorized participants - notably Alameda. Sun can restore the peg pretty much at will for a few million bucks.

[edit] To be clear I maintain you should stay as far away as humanly possible, but shorting it is a suckers bet.

Yeah, don’t short USDD (at least not yet). If Justin using His Excellencies personal wealth to bail out His Excellencies stablecoin sideproject, wait at least until the market cap goes beyond what he can bail out. It’s currently 3x over collateralized, you will lose.

Sort of, I believe they count anything they put in their burn address towards the 'overcollateralization' - but my point is also that redemptions are turned off. No matter how much collateral they have there's no mechanism to turn 1USDD into 1USD worth of any collateral at all. Conducting open market operations (buying up USDD in the market) is significantly cheaper than redeeming them. Last I checked it would cost about $30M to restore the peg in open market operations.

Yeah, you are correct. The downward spiral mechanism is allowlisted, and the players won’t bring this event.

I have no love for HE, but indeed it is a pretty clever play to monetize HE’s illiquid shitcoins. Ive always deeply distrusted HE but I may have underestimated him.

> If Justin using His Excellencies personal wealth to bail out His Excellencies stablecoin sideproject

What's with this "His Excellencies" stuff? Is it an obnoxious nickname, or is this backed by some monarch or gulf sovereign wealth fund or something?

His full diplomatic title is His Excellency Justin Yuchen Sun, Ambassador and Permanent Representative to the World Trade Organization in Grenada.

It is correct to address him as His Excellency or HE. He also has diplomatic immunity.

> He also has diplomatic immunity.

... in Switzerland only, in his role as the Permanent Representative of Grenada to the WTO.

He actually doesn't have diplomatic immunity in Grenada, and Grenada maintains an extradition treaty with the United States. [1]

[1] https://protos.com/sun-grenada-his-excellency-justin-crypto-...

Ha! Ok! I guess that is slightly less useful.

For asset managers high risk pays.

Make amazing bonuses for many years. Have extended vacation or retire.

Just don't use your own product and you will do well.

Not your keys, not your coins.

defi/spot is in a much healthier place than cefi.

when you're hodling, there's nothing that can liquidate you.

when you're using a defi protocol, you capture all the upside for the risk you're taking.

when you're using a cefi "bank", the bank keeps some of the spread when they're up, and goes insolvent when they're down. heads they win tails you lose.

They were leveraged to the tits and paid the price.

I don't believe whatever news are posted these days regarding crypto. After the whole gamestop charade of people cheering on the downfall of hedgefunds, it turns out they turned a healthy profit after all and none of what was originally claimed turned out to be true. Who the fuck knows who had a dog in that race to what extend and who was publishing so much misinformation. It even made it's way here, which is why I am writing this comment on HN. There's a slew of information that these articles omit/conceal that could completely change the narrative being portrayed.

There are too many misdirection plays here. People are being screwed, yes, but not the people you think (or in some cases "hope".)

I'm sure the creditors will happily accept payment in Bitcoin in lieu of cash. it's dIgItAL gOlD except the digital gold can be copied and pasted to make a new kind of digital gold that is identical to the other gold, completely unlike actual physical gold.

21 million Bitcoin. 2.1 Quadrillion Satoshi. For all time.

Unlike gold which can be mined in the trillions from asteroids.

Your argument that Bitcoin is trivially copyable was /an/ argument in 2014. We are in a different place now.

> Unlike gold which can be mined in the trillions from asteroids.

Congratulations, this is the stupidest thing I've read on Hacker News. Asteroid mining is not feasible and may never be.

If an argument was valid in 2014 and the logic behind that argument has not changed, it remains valid. People are still making pointless coins and getting big-name social media personalities to promote them.

Why not?

Imagine giving your money to anarchists and then you get scammed. They have a hate symbol on their site, LOL.

> They have a hate symbol on their site, LOL.

Care to elaborate? I see one graphic on the 3ac website, and it's not one I'm familiar with so I assume it's a corp logo?

I think the GP is claiming that the 3AC logo is a reference to the Three Arrows[1] logo, which was used by the SPD in Weimar Germany and by some flavors of contemporary anarchists. But I can't find any evidence that it's an intended reference, and they look pretty different to me (different colors and directions; the only similarity is that they both happen to have arrows).

[1]: https://en.wikipedia.org/wiki/Three_Arrows

I don't get the hate part. There was about a single competing party who would have used that attribute, and this one proceeded to ban the associated party and to open the very first concentration camps for social democrats. We probably all know how things went from there.

Correct. They weren't a hate group, and the groups that currently use their symbology also aren't hate groups. I think the GP is probably misinformed.

They are indeed hate groups, it's a hate symbol, thanks for playing!

The SDP was and is a center-left party. You can look their platform up today, and confirm that it is neither historically nor currently hateful. Their existence during the 1920s and 1930s was primarily defined in opposition to both further left and further right political movements.

(There's also no one modern group using the Three Arrows. It's a general symbol of the left, like the wildcat or the "A." It's not even clear who they'd be a "hate group" against.)

>> They are indeed hate groups, it's a hate symbol, thanks for playing!

> The SDP was and is a center-left party. You can look their platform up today, and confirm that it is neither historically nor currently hateful.

Words don't have any meaning anymore, so they mean whatever someone wants them to mean, so everything is true.

Symbol was noted and observed by law enforcement during the 2020 terror.

Just a reminder that terror is commonly known as a strategy to inject fear and tensions into a society with the goal of implementing a more restrictive/authoritarian framework or a revolutionary change of the principal organization of society. Protests for enforcing established rights don't fit this concept, even, if they should happen to derail at some point.

Also, various symbols associated to the GOP were observed in the context of the January 6th incident. So are these all hate symbols? Certainly not and every such notion is utter nonsense. Attributing meaning by incidental association is not how it works.

What do they hate?

I guess, the Warsaw Pact – as Helmut Schmidt (German chancellor 1974 - 1982) had been a strong supporter of NATO's Pershing II rearmament?

[1] https://en.wikipedia.org/wiki/Helmut_Schmidt

I genuinely have never heard of this hate symbol, to clarify: the people that use three arrows in a logo hate signatories to the warsaw pact?

This was rather a historical joke, in order to provide some cognitive dissonance. (Assuming, the background of this "hate symbol" interpretation is something like Prager U. I really can't think of any other source for this than the developing culture wars and certain talking points by certain institutions, i.e., "we hate them, hence, they must have hated us first, thus, this has to be illegal".)

Historically, the three-arrows symbol emerged in 1932 as a symbol of resistance against the NSDAP and was adopted as the official symbol of the German social-democratic party (SPD) that same year. It symbolises an equidistance from the NSDAP, the communist KPD, and monarchism. In this context, it was decried as a symbol of a "social fascist terror organisation" by the KPD, while conservative parties hedged fears of a people's front at that very same time. It was also adopted by social-democrats in other countries, e.g. by the SPÖ in Austria (also 1932).

Wikipedia cites a slogan "neither Stalin's slaves nor Hitler's henchmen" in the context of this symbol. This is as much "hate" as you may get from this.

https://en.wikipedia.org/wiki/Three_Arrows

BTW, the social-democrat three-arrows symbol is three parallel arrows pointing downwards left inside a circle, while the Three Arrows Capital logo is three arrows fanning out and pointing to the upper right, intersected by a quadrant of a circle. Where the former is blocky and in uniform color (most often white on red), the latter is multicolored and drawn in fine lines. The two symbols have about nothing in common.

Thank you for your explanation! That’s fascinating!

I really wish, certain groups would leave European history alone, instead of twisting it for the purpose of their talking points. (Compare, "Hitler was a socialist", "Hitler was an atheist", etc – but this is really as off-topic as it is disgusting.)

It's like word association for people who can't read.

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