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Battered Crypto Hedge Fund Three Arrows Capital Considers Asset Sales, Bailout

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Re: Battered Crypto Hedge Fund Three Arrows Capital Considers Asset Sales, Bailout

#21

Post by colinmhayes »

djbebs wrote: post #16
archerabi wrote: post #14

Earlier quoted context omitted.

Here's a concrete example. AAVE is a protocol that allows lenders to lend money to borrowers in a decentralized manner. So as a borrower, today, if you were to borrower 8000 USDC and deposit 10 ETH as collateral, the AAVE protocol would automatically sell your collateral if the ETH price went to 941$. So your position is "auto liquidated". https://aavecalculator.com/ AAVE currently has ~$9.9B in assets locked into it…

That no different from any margin loan

Yes it is. In traditional finance, especially at the big players, the bank will call the person about to be margin called to tell them they need to post more collateral, or if it looks like the market is being manipulated they’ll let the loan be undercollateralized for a short time. Defi auto liquidation makes it much easier to spiral due to unwinding after small losses.

Re: Battered Crypto Hedge Fund Three Arrows Capital Considers Asset Sales, Bailout

#22

Post by charles_kaw »

logicchains wrote: post #20
charles_kaw wrote: post #15

Earlier quoted context omitted.

> I don’t understand why you think crypto funds don’t arrange the same kind of “oversite” you describe. Because they don't. Because it's a wild west. TradFi has it's failures as well - but that's "whataboutism". DeFi is collapsing in real time and we'll probably see oversight and regulation around this in the near future.

>DeFi is collapsing in real time and we'll probably see oversight and regulation around this in the near future. From the perspective of people who support the mission of DeFi and aren't just in it for the money, this is a feature, not a bug. We want these dodgy, extractive institutions to go under and not have to bail them out.

Unfortunately, large defi institutions have been advertising to retail investors. Many of whom have not just had a haircut, but their whole head shaved.

Government regulation of retail finance is a feature, not a bug.

Re: Battered Crypto Hedge Fund Three Arrows Capital Considers Asset Sales, Bailout

#23

Post by archerabi »

djbebs wrote: post #16
archerabi wrote: post #14

Earlier quoted context omitted.

Here's a concrete example. AAVE is a protocol that allows lenders to lend money to borrowers in a decentralized manner. So as a borrower, today, if you were to borrower 8000 USDC and deposit 10 ETH as collateral, the AAVE protocol would automatically sell your collateral if the ETH price went to 941$. So your position is "auto liquidated". https://aavecalculator.com/ AAVE currently has ~$9.9B in assets locked into it…

That no different from any margin loan

Somewhat, look at toomuchtodo's comment. In tradfi, there are humans involved and you might be able to avert liquidation.

Re: Battered Crypto Hedge Fund Three Arrows Capital Considers Asset Sales, Bailout

#24

Post by joosters »

dcolkitt wrote: post #18
chollida1 wrote: post #2

The crypto community continues to speed run the history of traditional finance. This weeks lesson is that in an up market its leverage that makes you money and in a down market its the unwinding of leverage that kills you. They are also learning that interconnectedness will hurt more in a downturn. You can be perfectly delta hedged( don't care which way the market moves) and its the counter party risk that will sink…

> Crypto has tried to solve this by strict liquidation rules that tend to make things worse by turning firms into forced sellers This is literally how traditional finance works as well. If you have a leveraged position at a futures or options exchange, you absolutely will be liquidated as soon as your position gets close to being in the red. I 100% guarantee you that the CME or Goldman will not let you "ride things o…

As per Matt Levine:

...The way the traditional system works is that if you have a margin loan, and the value of your collateral declines, your broker calls you up and says “hey we need more collateral,” and you either post more collateral and it’s fine, or you don’t post more collateral and your broker liquidates your position. Or sometimes you say something like “hang on I’ve got another call, I’ll call you back after lunch,” or “sorry I don’t have the money right now but I am a good customer and you know I’m good for it,” or “I don’t have the money right now but I’m pretty sure prices can only recover from here so why don’t you let it ride for a day or two,” or whatever, and you don’t post more collateral but your broker doesn’t liquidate your position because you’re a human and your broker is a human and everyone is embedded in a repeated social game with fuzzy rules

Re: Battered Crypto Hedge Fund Three Arrows Capital Considers Asset Sales, Bailout

#25

Post by leishman »

chollida1 wrote: post #2

The crypto community continues to speed run the history of traditional finance. This weeks lesson is that in an up market its leverage that makes you money and in a down market its the unwinding of leverage that kills you. They are also learning that interconnectedness will hurt more in a downturn. You can be perfectly delta hedged( don't care which way the market moves) and its the counter party risk that will sink…

There are plenty of firms that run full reserve and are not subject to this contagion.

Re: Battered Crypto Hedge Fund Three Arrows Capital Considers Asset Sales, Bailout

#26

Post by airza »

dcolkitt wrote: post #18
chollida1 wrote: post #2

The crypto community continues to speed run the history of traditional finance. This weeks lesson is that in an up market its leverage that makes you money and in a down market its the unwinding of leverage that kills you. They are also learning that interconnectedness will hurt more in a downturn. You can be perfectly delta hedged( don't care which way the market moves) and its the counter party risk that will sink…

> Crypto has tried to solve this by strict liquidation rules that tend to make things worse by turning firms into forced sellers This is literally how traditional finance works as well. If you have a leveraged position at a futures or options exchange, you absolutely will be liquidated as soon as your position gets close to being in the red. I 100% guarantee you that the CME or Goldman will not let you "ride things o…

Individual investors tend to get liquidated, but for hedge funds larger investors the story is more complex. See https://www.bloomberg.com/opinion/articles/2021-07-29/archeg...>:

> In the traditional financial system, very few things work like this. One thing that mostly does is a margin account at a retail stock brokerage: If your stock declines, you will get a margin call, and if you don’t post margin within a defined and fairly tight time frame your broker will sell the stock, and this really might all be done by a computer in a pretty formulaic way. But if you have a big enough account — if you are a big hedge fund or family office — it doesn’t work that way. When Credit Suisse Group AG decided that Archegos Capital Management did not have enough collateral in its margin account, a Credit Suisse representative called Archegos and asked it to post more collateral, and Archegos said, sorry, we are really busy this week, let’s discuss next week. In theory Credit Suisse could have liquidated Archegos’s positions, but in practice that would have been rude, so it didn’t. Credit Suisse did not extend credit to Archegos based on some defined formulaic function of the value of its collateral; Credit Suisse extended credit to Archegos based on some fuzzy holistic relationship-based function of how much business it hoped to do with Archegos, how much the Credit Suisse people liked the Archegos people, how its traders felt about the collateral, when its risk committees had meetings, stuff like that.

Re: Battered Crypto Hedge Fund Three Arrows Capital Considers Asset Sales, Bailout

#27

Post by seibelj »

The private sector will have to arrange any acquisition of distressed assets or they will fail and people will get hurt. Lenders will harden and be better equipped for the future. This IMO is a good thing - there is no one to save anyone and the market will deal with the consequences. I don't care about the impact on prices. Drive the weak players out and let the strong survive.

Re: Battered Crypto Hedge Fund Three Arrows Capital Considers Asset Sales, Bailout

#28

Post by logicchains »

charles_kaw wrote: post #22
logicchains wrote: post #20

Earlier quoted context omitted.

>DeFi is collapsing in real time and we'll probably see oversight and regulation around this in the near future. From the perspective of people who support the mission of DeFi and aren't just in it for the money, this is a feature, not a bug. We want these dodgy, extractive institutions to go under and not have to bail them out.

Unfortunately, large defi institutions have been advertising to retail investors. Many of whom have not just had a haircut, but their whole head shaved. Government regulation of retail finance is a feature, not a bug.

>Government regulation of retail finance is a feature, not a bug.

It's not a bug unless you believe adults should be treated like children and not be able to take the risks they desire or face the consequences of those risks. Anyone investing in DeFi should absolutely have known the risks; it doesn't justify giving the government even more power over people's finances.

Re: Battered Crypto Hedge Fund Three Arrows Capital Considers Asset Sales, Bailout

#29

Post by lottin »

dcolkitt wrote: post #18
chollida1 wrote: post #2

The crypto community continues to speed run the history of traditional finance. This weeks lesson is that in an up market its leverage that makes you money and in a down market its the unwinding of leverage that kills you. They are also learning that interconnectedness will hurt more in a downturn. You can be perfectly delta hedged( don't care which way the market moves) and its the counter party risk that will sink…

> Crypto has tried to solve this by strict liquidation rules that tend to make things worse by turning firms into forced sellers This is literally how traditional finance works as well. If you have a leveraged position at a futures or options exchange, you absolutely will be liquidated as soon as your position gets close to being in the red. I 100% guarantee you that the CME or Goldman will not let you "ride things o…

Of course, crypto didn't invent margin trading. I think the OP was referring to central counterparty clearing, which typically provides an additional layer of insurance against defaults.

Re: Battered Crypto Hedge Fund Three Arrows Capital Considers Asset Sales, Bailout

#30

Post by theplumber »

dcolkitt wrote: post #18
chollida1 wrote: post #2

The crypto community continues to speed run the history of traditional finance. This weeks lesson is that in an up market its leverage that makes you money and in a down market its the unwinding of leverage that kills you. They are also learning that interconnectedness will hurt more in a downturn. You can be perfectly delta hedged( don't care which way the market moves) and its the counter party risk that will sink…

> Crypto has tried to solve this by strict liquidation rules that tend to make things worse by turning firms into forced sellers This is literally how traditional finance works as well. If you have a leveraged position at a futures or options exchange, you absolutely will be liquidated as soon as your position gets close to being in the red. I 100% guarantee you that the CME or Goldman will not let you "ride things o…

>> This is literally how traditional finance works as well.

Most recent case is that Archegos guy over-leveraged at Credit Suisse not to mention the LME or GME fiasco. The "traditional" market is rigged/bended by various individuals ALL THE TIME.

https://www.reuters.com/markets/commodities/elliott-associat...

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