SBF Warns Several Crypto Exchanges Are “Secretly Insolvent”

Key Takeaways

  • Sam Bankman-Fried, the creator of the well-known exchange FTX, recently cautioned that some cryptocurrency exchanges are “secretly insolvent” and may soon fail.
  • SBF’s companies FTX and Alameda Ventures provided quick credit lifelines to BlockFi and Voyager, respectively. These loans were worth a total of $750 million.
  • Such injections, in the eyes of SBF, went beyond simple altruism to serve as a safeguard against contagion and the survival of the cryptocurrency industry.

The founder of the cryptocurrency trading platform FTX, Sam Bankman-Fried, has warned that additional crypto exchange failures “are coming” and said that “some third-tier exchanges are already secretly insolvent.” The current bear market, as well as the fallout from Terra LUNA and UST last month, have severely impacted the cryptocurrency economy. Undoubtedly, Terra’s failure set off a substantial cascade effect that caused massive losses for a number of exposed businesses.

In an interview with Forbes that was released on Tuesday, the CEO started by addressing some companies whose financial struggles are more widely known. These include lending platform BlockFi and cryptocurrency broker Voyager Digital, both of which experienced severe financial spillover as a result of Three Arrows Capital’s collapse.

A crypto hedge fund called Three Arrows Capital (3AC), based in Singapore, is said to have purchased $200 million worth of locked luna classic (LUNC), which is now worth $700. Terra, Celsius, and 3AC’s problems appear to have exposed other cryptocurrency firms to them as well.

SBF’s companies FTX and Alameda Ventures provided quick credit lifelines to BlockFi and Voyager, respectively. These loans were worth a total of $750 million.

Knowing there is no guarantee he will get his money back, SBF said on the deals, “You know, we’re willing to do a somewhat bad deal here if that’s what it takes to sort of stabilise things and protect customers.”

Given the allegedly unsustainable yields offered to users and the murky “webs of relationships” between businesses operating in the space, smaller crypto exchanges may be particularly susceptible to failures during this bear market, according to a recent report from the crypto data provider Kaiko.

Kaiko claims that a number of factors, including the usual decline in trading volumes that occurs during crypto bear markets, are putting exchanges under pressure right now.

In addition, Bankman-Fried said:

For reasons such as a sizable hole in the balance sheet, regulatory concerns, or the fact that there is not much of a business left to be saved, there are some companies that are essentially too far gone and it is not practical to backstop them.

After numerous media reports linked FTX with a deal to acquire the stock trading app, Bankman-Fried took the time to “deny any active merger talks” with Robinhood but refused to name any of the companies he believed to be in trouble.

A transparent onchain protocol “couldn’t have happened with an onchain protocol that was transparent,” according to Bankman-Fried, who discussed 3AC on June 19 and claimed on Twitter that the company’s financial difficulties. In an interview with Forbes author Steven Ehrlich on June 28, 2022, Bankman-Fried discussed cryptocurrency exchanges that are “secretly insolvent” in great detail.

The crypto lender BlockFi received a USD 250 million loan from FTX earlier this month, according to the company’s founder, who also posted on Twitter:

“We take our responsibility to safeguard the customers of the digital asset ecosystem seriously.”

Additionally, SBF is “watching” cryptocurrency miners:

SBF was also “keeping [an] eye on crypto miners, who mostly utilized their balance sheet at frenetic pace to rapidly scale and reap the benefits of this 21st century digital gold rush,” according to Forbes.

As a result, the hash rate and energy usage of miners have decreased, making the Bitcoin network less secure. The CEO thinks businesses that used Bitcoin as a balance sheet hedging tool during the 2021 “digital gold rush” may be in even more trouble.

SBF is really not concerned about Tether, the dominant stablecoin that has endured years of FUD, though.

“I think that the really bearish views on Tether are wrong… I don’t think there is any evidence to support them,” Bankman-Fried told the reporter.

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Aadrika Sharma

I enjoy writing and try to learn new things every passing day!

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