Peter Thiel-Backed Crypto Lender Vauld Suspends Withdrawals
wsj.com
wsj.com
> The platform, Vauld, said Monday that it froze the operations after users pulled almost $200 million over the last three weeks. A sharp decline in cryptocurrency prices that began with the collapse of two cryptocurrencies in May has spooked traders and caused knock-on effects in the digital asset world.
It's called "a bank run":
> A bank run or run on the bank occurs when many clients withdraw their money from a bank, because they believe the bank may cease to function in the near future. ...
https://en.wikipedia.org/wiki/Bank_run
Except this bank has no FDIC insurance, no backstop, nothing.
Oddly enough, I think US tax policy may play a factor here in motivating people to ignore the repeated and loud warnings about how this was a really, really bad idea. When you're facing massive capital gains taxes, and have an inkling that those gains will turn to losses, the idea of lending out the asset, spending the cash without incurring tax, then getting the asset back starts to look attractive.
Of course, the real problem was that those warnings got ignored. I mean, who reads something like this without alarm bells going off all over the place?
> Our interest rates and trading fees are among the best in the industry. You can earn interest of up to 11.57% (APY) on your cryptocurrencies, and borrow tokens with our spread being as low as 1%. We don't charge deposit or withdrawal fees, or fix a cap on your daily withdrawals. You can check all our fees and rates here.
Just like a commodity.
People need lots of things. The principal constraints on real estate are political. (The entire concept of real estate is a social construct.) Not physical space.
Even if (the amount of) physical space isn't one of the main constraints on real estate, any particular location may be more desirable relative to others, e.g. a gorgeous view, away from factories or highways.
A bear's den isn't its property any more than a park bench slept on becomes the slumberer's own.
Property, specifically, the system that relates a person to some land via a bundle of use rights, is a deep human construct. It likely goes back to the dawn of agriculture and civilization [1].
A bear, however, will use (and indeed seek to monopolize) violence to defend its den. That makes it property, at least until the bear relinquishes its claim (or something - or someone - else challenges its monopoly on violence).
That makes it territory. The simplest definition of property might be use rights one doesn’t need to use violence to defend. (Countries don’t have property.)
For something to be property entails all of:
- usus: the right to use it;
- fructus: the right to profit or otherwise benefit from it; and
- abusus: the right to destroy it, alter it, or otherwise exclude others from it
Abusus is in and of itself violence (specifically, theft) unless consented to by all other members of society. By "use rights" you might be thinking of something like usufruct, which is distinct from property and (as you correctly assess) does not necessarily entail violence or the monopolization thereof.
> Countries don’t have property.
Of course they do: their sovereign territory. It is indeed that property, enforced via a country's / nation-state's monopoly on violence - from which all land ownership derives (hence: that piece of paper called a "deed" that would be useful only as kindling or sanitary napkins if not for the state enforcing it).
It's politics, usually, keeping the factories and highways away. More fundamentally, the notion that a piece of paper (the deed) gives you certain rights (but not others) over some land is totally made up.
Chattel slavery underlines the point. What is and isn’t property is decided, arbitrarily, by people. Because property is a social construct.
What is and isn’t someone’s body does not depend on others accepting it has meaning. How it’s treated does. But my body has inherent value to me independent of others’ perceptions of it. This is, at its core, the problem with slavery.
If we reject property being a social construct we reject the fact that the government, a social construct itself, could have legalised and then outlawed slavery. Because if property is inherently meaningful, how can the government poof it away?
I don’t see how this changes the fact some locations are more desirable than others.
> More fundamentally, the notion that a piece of paper (the deed) gives you certain rights (but not others) over some land is totally made up.
It is very useful though, otherwise how would I know where to sleep tonight? By lottery a few hours before the sun sets?
Totally agree! Most social constructs are! That’s why we keep them. Something being a social construct isn’t a diminishment of it. Governments, laws, families and religions are all social constructs and all highly useful.
And surely then every idea of any category is dissolved as meaningless and arbitrary, and then reason itself is absurd?
Social constructs have developed over time under evolutionary pressure. Useless or damaging constructs eventually disappear since they contribute negatively towards survival.
The constructs that remain have demonstrated a certain level of fitness towards the environment.
Social constructs likely follow the Lindy effect.
The longer one exists, the longer it can be expected to continue to exist.
Old constructs have proven their fitness simply by persisting over a long period time.
I think it's easier to make the mistake the other way around, to wrongly assume that a relatively new social construct will remain "fit" far into the future.
A bubble occurs when speculators pile into that investment vehicle and drive up demand even further. This becomes a reinforcing phenomenon until the number of new speculators dries up and it suddenly whipsaws the other way.
Nothing is immune from a bubble, but housing is particularly prone to it based on the lag between demand and available supply. It also means the hangover is often decades long while it clears the backlog.
Yes, people need houses. But people don't need 4 or 5 houses as speculative investment vehicles that "pay for themselves" by renting out while they hold it for a couple years before flipping. That's the demand that crashes hard when markets turn.
Yeah, my Roth, and other domestic tax exempt entities trade much better with crypto. My Puerto Rico tax-free colleagues also make more holistic decisions, but are generally much better connected to begin with than normal crypto traders.
My taxable accounts definitely trade differently, I want to make long-term capital gains but I never can hold that long, except by accident. Definitely more temptation to try to use the assets as collateral to hold longer, but then you have to pay back the collateral when it gets liquidated and you still have to report the capital tax treatment on the forced sell (gain or loss). But I do like tax-loss harvesting, and before this year there was no wash-sale rule applicable for crypto, so any random panic dip you could sell and get right back in the position and keep holding, locking in an offset for things you did sell at a profit too soon.
There have absolutely been things that I didn't sell because I didn't want the tax yet. Things I couldn't use as collateral. I resorted to donating things in profit to my tax exempt entities, even if I didn't get a fair-market-value deduction (still got a cost-basis deduction, same deduction as just donating the initial cash instead of buying an investment to begin with), I was still fine letting the tax-exempt entity sell tax free and just have more cash, because there is still a massive delta between the purchase price and current price and the government doesn't get a cut (I don't get the impression that any of their security and infrastructure and courts helped in these trades, something I do factor in since I have more legal choices in which action generates a tax/revenue event for them). But I personally still missed out on simply having more money to spend. For me that's okay, slightly miss the idea of some more play money or pushing that into a dope house after paying the governments a tax, but mostly just an observation while on the topic.
Every single problem that cryptocurrencies face are extremely well known and studied phenomena in traditional economics. It is all very predictable.
"The panic might have deepened if not for the intervention of financier J. P. Morgan, who pledged large sums of his own money and convinced other New York bankers to do the same to shore up the banking system. That highlighted the limitations of the US Independent Treasury system, which managed the nation's money supply but was unable to inject sufficient liquidity back into the market."
This led to the creation of the Federal Reserve System.
Some are lying about it being different, some are willfully ignorant, and some are just clueless, but they were all excited to start something up in this new and exciting industry where people were literally throwing money at them.
https://www.finance-watch.org/lessons-from-history-vii-tulip...
https://www.smithsonianmag.com/history/there-never-was-real-...
You are unwittingly making the argument that traditional finance, or the future thereof, is (/ "should be") tulip bulbs. Perhaps not the worst of arguments, but probably not your intention to advocate as you have that traditional finance become tulip bulbs.
That's optimistic.
The idea is solid, but a wiping of the slate will allow for a new generation. One that will better benefit established powers.
Those lending companies closing down are basically centralized platforms very much like the legacy financial system. This take is the same type of uneducated comment that someone does while attributing actions done by say Coinbase to crypto as a system.
Those are internal database tasks. I'm sure the IT staff at Lehman Brothers could have run defrag jobs and swapped backup tapes until the Sun went out. That wasn't the problem at Lehman.
The bitcoin network can process blocks when a bitcoin is worth $10,000 or $1 or $0.00001. The problem is that in the last two cases, economically, nobody would care if bitcoin is still processing blocks.
This was partly true in the S&L crisis [1]. And for depositors in e.g. Cyprus or Iceland in '08. The difference, however, was depositors in S&Ls and Cypriot and Icelandic banks were legally depositors. The banks' assets were insufficiently liquid to accommodate them en masse. But those assets had value. And that value went, almost first and foremost, to the depositors.
In crypto, there is no such protection. It is likely creditors, employees, tax authorities and secured lenders get paid ahead of users, who are at the end of the day simply unsecured creditors. (And bad ones at that.) Night and day. (Given Coinbase's debt trades comparably to Russia's [2], the smart money is betting users will get nothing in a failure.)
Aside: There is another way to look at it. Users' assets at these firms are CoCos [3]. After the crisis, regulators pushed these bonds which convert into equity when the borrower is distressed. Vauld is distressed. It has to make its loan payments, those lenders can shut it down if it defaults. But it doesn't have to pay users, or even let them withdraw their funds. So their funds "convert," in effect, into equity. Money Vauld can play with to buy time until their assets rally or right the ship with a lighter burn.
[1] https://en.wikipedia.org/wiki/Savings_and_loan_crisis
[2] https://markets.businessinsider.com/news/bonds/coinbase-cryp...
[3] https://www.investopedia.com/terms/c/contingentconvertible.a...
The intention of your comment is to paint coinbase debt as worthless, but after doing some research I came to a different conclusion: that russian debt isn't as worthless as I thought. Right now 10 year russian bond yields are at 9.15%[1], which is only a little over 6 percentage points above the "risk free" rate of 2.96%[2] for US treasuries. For reference that's about the rate for B rated US corporate bonds[3].
[1] https://tradingeconomics.com/russia/government-bond-yield
[2] https://www.cnbc.com/quotes/US10Y
[3] https://data.nasdaq.com/data/ML/BEY-us-b-rated-corporate-bon...
That was not my intention. Coinbase's debt is viewed as risky. That has implications for the risk junior creditors (e.g. users) are taking.
Furthermore, the bonds' 10% yield is comparable to the 13% Vauld was offering [1]. Except the Coinbase debt is senior to its users claims. Assuming Vauld and Coinbase are comparable, which I think is generous to Vauld, that gives you a sense for how misplaced the risk/reward was for Vauld users.
> 10 year russian bond yields are at 9.15%
Russian debt is trading weirdly. There are various domestic and offshore quotes, since the reason it's trading down is because of sanctions, not Russia's creditworthiness. Still: risky.
[1] https://techcrunch.com/2022/07/04/crypto-lending-platform-va...
the reason russian bonds is considered worthless is due to politics, not due to the lack of or capability to pay from the russian gov't.
Politics can change on a dime, but a company's financials isn't gonna improve suddenly without warning tbh.
The better strategy (and the one used by the super rich) would be to borrow against the asset, as the loan isn't taxed. And if the lender's only recourse is your collateral, then you're insured against the cryptocurrency's collapse.
With the strategy you've described, you're still keeping a long position in the cryptocurrency, and have increased its volatility.
There are billions of reasons to embrace the idea of a platform shift but when everyone can see it coming a mile away they're probably either wrong or a deep trough of sorrow away from it working out.
It's more indicative of the amount of money in the system imo and the reason there's money in the system is because some powerful VCs really would like the transition of power from classical finance to their newly minted financial system. Then the rest hopped on the bandwagon.
Crypto marketcap topped $3T this run. It was likely much higher given that this $3T figure comes from CoinGecko and it doesn't track NFTs and unlisted tokens.
Yet the real world impact of this market crashing wasn't really as big as it would have been if a "real" $3T market was to drop by 2/3rd.
I suspect that in the absenece of real world growth and quickly depleting real world assets, more and more businesses will pile into web3/meta/crypto. In the metaverse, you can theoretically have infinite growth as long as that money stays within the metaverse ecosystem.
Re the market caps, these are a fantasy propped up by unaudited exchanges currencies like tether. So it’s unsurprising all that perceived wealth melts into air - it never existed.
Interesting that you think web3/meta/crypto are tied together and have a future when nobody wants to use them. They were simply vehicles for speculation in a very large asset bubble, now that the bubble has started to pop nobody wants these speculative assets but we haven’t seen capitulation in markets yet nor the end of fed rate hikes, so the pain will continue.
Re infinite growth and business interest in these three areas, I see no evidence of that.
A British Virgin Islands court ordered the liquidation of Three Arrows Capital Ltd. after creditors sued the cryptocurrency hedge fund for failure to repay debts. Nichol Yeo, a partner at law firm Solitaire LLP, said Three Arrows Capital is considering its options and seeking legal advice in the British Virgin Islands.
"The platform, Vauld, said Monday that it froze the operations after users pulled almost $200 million over the last three weeks."
Note: I dislike the guys politics, but that has nothing to do with an objective assessment of his financial investment chops. Same with Andreessen, he doesn't figure in my 'friends of carlotta' list but he obviously knows a good investment when he sees one.
My personal belief is that Thiel is too smart to have believed any of the bullshit about coins and NFT, and was in this as risk play for the upside. I am sure he made heaps doing this elsewhere in the crypto bubble, he can wear this (small, in his terms) downside outcome.
Clarium lost bigtime. No disagree. He has about 5 other vehicles as I see it. His roth IRA alone is going to be fantastic.
I wouldn't use him as my financial investment agent, personally. I'm not tracking his investments, I let my superannuation fund make it's own mind up.
... was just proved wrong and now I realise that billionaires can make stupid mistakes just like everyone else.
I upvoted you for a good rebuttal!
Thiel has a sputtering of good ideas, and he was in the right place to invest in some successful ventures, but he’s not some once in a life time visionary.
As of now, it looks like he’s nothing but a hypocritical selfish vindictive rich asshole with a blood boy (every adjective here being something you can substantiate with actual facts).
The science is, for better or worse, fairly legitimate though. The ramifications are dystopian of course.
I think you're confusing your personal dislike of him (asshole) with his abilities (not a visionary). There's no reason those qualities should be aligned.
Until then, you basically look like a couch philosopher criticizing public figures on an anonymous forum. Well done.
You basically look like a anon pundit, criticizing couch philosophers on an anonymous forum. Well done.
I am rubber, you are glue!
How many people on this board can claim the same?
https://www.washingtonpost.com/business/2022/06/13/celsius-c...