Daily observation 6/24

June 23rd, 2022

The Degen Trade

3AC had a massive margin long on BTC with a liquidation price of around $24k. They kept this a secret, even from their partners, because they didn't think it would realistically go that low. Terra, LFG, and market conditions sent bitcoin plunging...
The Margin Calls

Counterparties tried contacting 3AC to ask for collateral, but they ghosted everyone. They were forced to liquidate 3AC's positions, causing BTC to drop further from $24k to $20k. This move kicked off a spiral of cascades & bank runs for several parties.
The Painful Losses

After the first default (Hidden Road), losses were exacerbated. Genesis allegedly faces high-nine-figure losses and will sue. BlockFi and BitMEX had some exposure, but not much. Other minorly affected parties include Cumberland, Galaxy, and Deribit.
"I Can Fix Her..."

During the collapse, in a desperate bid for liquidity, 3AC solicited BTC from whales and trading firms. They lied about the fund's AUM, didn't disclose the degen long, and promised an estimated 20% yield on whatever they got. Most funds smelt a rat.

The Collateral Damage

Smaller market makers allegedly used 3AC's trading accounts as a prime broker to get fee discounts. Some of these entities, like 8 Blocks Capital, have accused 3AC of stealing their funds without permission - amounts as low as $1m.
The Degen Loan

In one of the most degen loans of all time, Voyager lent around $700m to 3AC - undercollateralized. They used interest payments to provide retail-facing yield through their platform and skimmed a cut for themselves. Upon this revelation, VOYG fell over 50%.

The Damage Report

Most of 3AC's remaining assets are in the form of illiquid equity investments like Deribit and Starkware (their L1 tokens have crashed heavily), so this is just an estimate. Assets: $400m. Debts: $2b. Net worth: minus $1.6b. Absolute insanity.

Their Next Move

There will be lawsuits. There will be liquidations. Creditors will come for everything they possibly can. There's a fair chance 3AC did something illegal, especially in their final days. They will try to stay out of prison and resolve everything cleanly.
Most creditors will never be paid because there simply isn't enough money to go around. Around $1.6b is gone - money that went to BTC miners who dumped their positions and large funds with open shorts (perhaps even a fund who is extending bailouts right now).

In the face of this knowledge, what should you do? There is one crucial, actionable piece of advice. Pull all of your money out of centralized yield services like BlockFi, Voyager, and Nexo for the time being. It is not worth the risk. Withdraw it all into your Ledger.
Bailout loans help with cashflow, but they don't get the money back. Additionally, these services will have to introduce heavy interest rate cuts due to market conditions and lower availability of lending counterparties, making the reward far less worth it.

This sort of contagion can ripple out for weeks and we still don't know who was affected and to what extent. The best part is, when the dust settles, you can always redeposit into your favourite platform without issue. Wait a month or two and see how everything plays out.
There is no reason to have money in these services right now, because their long-term viability is uncertain and you are gambling on solvency. You will potentially give up 0.5% in yield (or less, once they reduce rates), but you lower your risk massively.
So - and I can't stress this enough - bring all of your coins into self-custody until yields stabilize and the situation is clear. This is a wise risk-adjusted decision given the scenario, and you can always come back later. Stay safe & stay vigilant!

In a week， I finished reading “Principles: Life and Work” by Ray Dalio.

However, putting the principles into effect requires more time.