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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

#41

Post by gst »

UncleMeat wrote: post #37
gst wrote: post #34

Earlier quoted context omitted.

> In crypto, there is no buffer. Auto liquidation of undercollateralized positions occurs. All of those humans in the loop, “unfair rules”, and settlement delays crypto proponents complain about are the very things that make traditional finance stable. Is auto-liquidation a bad thing? It leads to more volatility in the short-term, but it seems that there might be long-term benefits of ensuring that players with unres…

The concern is propagation. If margin calls blow up individual organizations or institutions, that's bad but not a fundamental threat. The issue is that things are connected.

But it's only an issues for other connected entities when they are using risky business practices themselves.

A stablecoin that backs its assets in the currency that the stablecoin issues (for example a USD-based stablecoin that is backed by US treasuries) won't be affected by any disruption in the market. An exchange that is fully backed and does not allow margin trading won't be affected either. Regular holders who hold their own coins or use responsible exchanges also aren't affected.

Yes - there's quite a bit of propagation. But all entities affected by that propagation didn't seem to have proper risk management and used business practices that work well when the market does well, but that fall apart in case of high volatility. Maybe I'm just biased because I'm not a fan of margin trading (and similar practices), but I don't consider it a disadvantage if an ecosystem is hostile to those types of business practices.

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

#42

Post by blitzar »

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

It is no different at all. However, in traditional finance that is called a "margin loan" in defi it is called a "crypto interest account paying 20% with 0 chance of losing all your money"

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

#43

Post by ausbah »

seibelj wrote: post #27

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.

what firms are going to survive this, seems like everyone is being hit hard

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

#44

Post by worc3131 »

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…

> You don't have to take my word for this. Look up the history of what happened to the energy hedge fund Amaranth.

Amaranths positions were sold to Citadel and JP to wind down gently. That's pretty different from forced liquidation at the exchange.

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

#45

Post by seibelj »

ausbah wrote: post #43
seibelj wrote: post #27

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.

what firms are going to survive this, seems like everyone is being hit hard

Plenty of firms and trading shops will survive. Not everyone was a total YOLO degen with billions of dollars.

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

#46

Post by ikiris »

gst wrote: post #34
toomuchtodo wrote: post #8

Earlier quoted context omitted.

When you get margin called in traditional/centralized finance, humans intervene and liquidation is not immediate (except Interactive Brokers, who are closer to how crypto manages margin, and will liquidate you without a margin call). Maybe you put up more collateral, maybe you borrow from a line of credit, there is a buffer. As an individual, you work with your broker. As a larger participant, you work with the clear…

> In crypto, there is no buffer. Auto liquidation of undercollateralized positions occurs. All of those humans in the loop, “unfair rules”, and settlement delays crypto proponents complain about are the very things that make traditional finance stable. Is auto-liquidation a bad thing? It leads to more volatility in the short-term, but it seems that there might be long-term benefits of ensuring that players with unres…

> Is auto-liquidation a bad thing?

Not if you pretend everyone is an island and economies aren't interconnected.

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

#47

Post by hanklazard »

chollida1 wrote: post #40
leishman wrote: post #25

Earlier quoted context omitted.

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

Good to know, Who are these fully capitalized crypto firms?

Good question. Finding that out would take a lot of on-chain analysis.

I have no love for these firms so I really don't care if they are solvent. For those that took major risks with leverage and mismatched their risk on duration, let them fail. Some in this thread seem to be saying that having humans involved in liquidations is preferable because it prevents contagion. To me, that sounds like letting someone get away with bad decision-making and safe-guarding them against the previously defined consequences. Sounds like the same kind of philosophy that makes some firms in traditional finance "too big to fail." This kind of thinking kicks the can down the road instead of addressing the problem and feeling the pain now.

I say liquidate them. Maybe that's easy for me to say because my only exposure has been through defi protocols that I interact with directly and with risks that I've considered. These Cefi companies take retail money, use it to take risky positions in defi, then take a large cut of the profits. Works great until a market downturn and people start asking for the their Eth back and, whoops, we don't have access to it until 6M+ post-merge (Celcius). That's called piss-poor risk management and I don't want these kinds of actors in the market long-term. I feel bad for the retail that is getting screwed in all this but in the end, we need regulators / DOJ to come down very hard on these companies. If we clean house now, the space will be stronger in the future. Yes it will be painful in the short term.

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

#48

Post by woeirua »

seibelj wrote: post #27

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.

I think you'll change your tune on this when too many firms fail at once and this becomes a systemic issue.

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

#49

Post by ShamelessC »

rawoke083600 wrote: post #31
blitzar wrote: post #12

Earlier quoted context omitted.

DeFi - Contracts are code. TradFi - Your word is your bond.

This ! The "idea" of Defi was that w wouldn't need "regulations and rules" since we could 'just' look at the actual deployed code(eth contract for example) to see if you going to get screwed. Of course few ppl actually look at the code, or sometimes the code is just bad and you get bad actors willing to exploit this. That being said: In practice and real life there are a bunch of dodgy companies and badly written eth…

I suspect most experienced software engineers would find that all rather obvious. Bugs are a fact of life. Even formal verification can't save you from this. Good software is built to be resilient to our own bugs, because they are simply inevitable. It's not about good or bad programming, every one has the ability to make a simple mistake resulting in huge consequences. It's basically a rite of passage to have crashed a service with a code push.
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