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Comment by phabricator | Hacker News Reader

Failed hedge funds aren't new. Can someone with more knowledge explain why liquidating this one is so much more difficult than traditional ones?

What's the next step here, SEC lawsuits?

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Hedge funds usually have an administrator who holds the money. This is a big, reputable organisation, usually tied to a bank and heavily regulated. it permits the fund to trade within a narrow mandate agreed with fund investors. If the HF managers disappear, the assets, perhaps with heavy losses, remain with the administrator. The administrator answers first and foremost to fund investors.

The article suggests, and it's not uncommon with crypto hedge funds, that funds were held in private wallets. So if Su Zhu disappears one day with his Ledger, that's that.

Having external administrators for classic HFs wasn't the norm until Bernie Madoff (who didn't have an administrator), funny that.

Crypto or not, when a large, heavily leveraged hedge fund implodes, it's really complex to unwind. It was the same when Bill Hwang's Archegos Capital failed last year:

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

The day they got wiped out, the liquidations caused a 27% drop in share price of ViacomCBS. The various lawsuits and charges of fraud and racketeering will take years to work their way through to completion.

Are there other crypto funds that are structured to handle a failure better?

I know it's crypto but it's shocking to see people invest in a suitcase stuffed with dollar bills.

"custodianship", as it is known, does begin to exist in crypto world. The custodian / administrator / prime broker (all related terms) hold the actual keys, and you have something like a limited key that permits some pre-agreed operations. So for example you can only wire funds to pre-approved addresses.

DeFi is holding up just fine.

traditional hedgefund money is in a bank - a court can freeze their account, give it to their creditors, seize any new money that goes in it, etc.

Crypto hedge-funds money is a cold-wallet protected by a 12 words phrase (some anyway - if they are smart). No one can really get to them.

(yes - the founder can go to jail. But, funds could stay locked forever)

> Crypto hedge-funds money is a cold-wallet

Is this the case here, specifically? (I assume so, just curious)

Given a choice between life in jail or turning over the coins, I know what I would do.

It's crypto. It's not like the assets are sitting in traditional accounts that can be force liquidated by court order.

SEC? Lol. If these guys have run off (reading the article it doesn't seem like it), the lenders are screwed. A fraction of $10 billion can buy you a lot of protection especially in crypto safe havens like El Salvador--most of which happen to be hotspots for organized crime.

//It's not like the assets are sitting in traditional accounts that can be force liquidated by court order.

Yes they can unless they want to go to jail.

Or if they've run off (not saying they have). With a traditional account, a court could force the bank to transfer assets. Unless there is a third-party custodian of the accounts, there is no recourse. Not your keys, not your coins after all.

Are there "Wanted, Dead or Alive" smart contracts yet?

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