Bripto bailouts: Emergency Crypto Stabilization Act of 2022

The high-profile collapse of the Terra ecosystem and subsequent collapse of hedge fund Three Arrows Capital — together with troubles at Celsius and other CeFi lenders — have spread contagion throughout the wider crypto industry.

At the same time, coin and token prices have nuked massively from all-time highs alongside major Fed-fueled declines in traditional markets — causing widespread losses (both realized and unrealized).

Retail has — for the time being, at least — exited the game, and general risk-off attitudes are unlikely to bolster the crypto market in the near-term.

Crypto is once again in a bear market. Fear, uncertainty and doubt are pervasive. Both BTC and ETH have revisited prices below their last-cycle all-time highs. Entities and major players across the industry are seeing actual threats to their financial well-being.

The crypto industry may be experiencing its own over-leveraged financial crisis as customer confidence crumbles and questions are being asked about liquidity and solvency. Obviously, no government bailout is in the cards (though regulation may be) — leaving the industry’s largest players to try and stem the bleeding themselves.

==This article aims to serve as a comprehensive record and examination of proverbial bailouts across the crypto industry.==

Voyager Digital Ltd. signed a non-binding term sheet with Alameda Research to secure both a cash/USDC-based credit facility for 200 million USD and a 15,000 BTC credit facility. Both credit facilities expire on Dec. 31, 2024 and carry a 5% annual interest rate.

• Voyager blamed "current crypto market conditions" and claimed the loan is meant to help it "better serve and protect its customers."

Before the loan, rumors were circulating concerning Voyager’s possible insolvency.

• Speculation exists that Voyager’s apparent financial issues stem from it loaning Three Arrows Capital 320 million USD.

• Voyager has claimed that it does not engage in DeFi lending activities, algorithmic stablecoin staking/lending, derivative assets or stETH.

  • It has referred to its business practices as "low-risk" and and "straightforward."

BlockFi signed a term sheet with FTX to secure a 250 million USD revolving credit facility.

• The announcement was made by the BlockFi’s CEO, Zac Prince, who tweeted that the loan provides the crypto platform "with access to capital that further bolsters out balance sheet and platform strength."

• FTX's CEO, Sam Bankman-Fried, referred to the deal as a capital injection in order to partner with BlockFi and help it "navigate the market from a position of strength."

Some in the crypto industry believe the deal still doesn’t make BlockFi tenable.

• Supposedly leaked financials via @0xHamz show the crypto platform burning some 350 million USD in 2022 with negative gross profit.

• Not helping BlockFi’s near-term outlook is the belief that clients’ de-risking is expected to hit crypto lending platforms hard in the immediate future.

After an approved proposal provided Solend Labs with "emergency powers" to take over a whale’s wallet in an attempt to avoid liquidation — a result of SOL’s price decrease — a subsequent proposal passed that invalidated the move.

• The takeover was originally attempted to prevent the decentralized lending platform from taking on bad debt and putting strain on the already-strained Solana network.

• Following the passing of governance proposal SLND3, a per-account borrow limit of $50M will be imposed on Solend.

The whole situation with Solend has highlighted that some decentralized finance protocols are not very decentralized.

• Upgradable smart contracts in the DeFi space may be problematic.

After an individual account went into negative equity and couldn’t be automatically liquidated, CoinFLEX paused user withdrawals. Subsequently, the individual in question apparently pledged "stringent personal guarantees around account equity and margin calls in exchange for not being liquidated."

Now, in an attempt to re-enable withdrawals, the self-professed "Home of Crypto Yield" is planning to monetize the individual’s "personal guarantee" by launching a Recovery Value USD token, or rvUSD. CoinFLEX claims there is "significant interest in the terms presented" from "potential large buyers."

• The maximum amount of rvUSD being issued is 47 million tokens — implying the problematic loan in question was for 47 million USD and not collateralized.

• CoinFLEX is offering a 20% APR paid daily in rvUSD — an interest rate with questionable sustainability.

Goldman Sachs is reportedly trying to raise 2 billion USD in an effort to buy distressed assets from Celsius after the crypto lender tapped restructuring advisors Alvarez & Marshal and restructuring attorneys from Akin Gump Strauss Hauer & Feld.

• Buying distressed Celsius assets would potentially provide investors with massive discounts on coins and tokens in the event of the latter’s bankruptcy — which seems increasingly likely.