> Anonymous sources who claim to have inside knowledge allege that Babel Finance has been misusing client funds via highly leveraged transactions and without permission.
If you need any strong suggestions that Tether's asset statements are a pack of lies, this is it. They claimed to have--before the cryptocurrency collapses started--an equity buffer of around 0.2% of total assets. Now they claim to have unwound ~10% of those positions in a market environment where selling any of those assets (even something like US treasuries!) would realize enough loss to wipe out that buffer. Instead, their equity buffer increased by something like 0.00001%.
People mistake Bitcoin, which has no central custodian and will continue clearing transactions all day long, every ten minutes, immune to all interference, with the rest of 'crypto', which is a giant money-lending dumpster fire that isn't backed by anything.
Once all the dust settles down Bitcoin will keep ticking along just like it's been doing for years.
Babel was pretty important to other lending institutions.
Here are dominos to fall ahead of us:
- BlockFi
- Voyager
Somewhere down the line, tether is also standing. We know they're insolvent, the question is when redemptions become a problem. And at that point, the abyss
> At the end of 2021, Babel Finance had an outstanding loan balance of over $3 billion, up from $2 billion the previous February. It averaged $800 million in monthly derivatives trading volume and had structured and traded over $20 billion in options products.
The ripple effects here are going to be substantial and unpredictable. This was a toy bank/hedge fund that grew to monstrous proportions. Now that bank is experiencing a run and it has done what every bank before it facing a similar problem has done: blocked withdrawals.
Please explain to me the difference between a bank and a Ponzi Scheme.
>Please explain to me the difference between a bank and a Ponzi Scheme.
Banks are forced to abide by regulations and laws dictating how fractional-reserve organizations are allowed to operate. In return, peoples' deposits are backed by the government up to $250k (in the US).
Ponzi schemes ignore regulations and laws, and their customers' deposits are not insured or backed by any organization.
The laws that banks are forced to follow may be woefully insufficient, but the government is incentivized to prevent serious collapses because they would be on the hook for a lot of money. Retail customers are also less likely to start a run if they trust that someone will be there ready to hand over their cash when the dust settles.
My biggest takeaway right now is to study the crypto firms and projects that are having trouble as a way to abstract what red flags to look for.
For example, with Terra the abstraction was that pegs don't work as we've seen many a time, especially when Soros broke the BoE. I took a small bath with my Terra holding and life goes on. I can do that because I didn't use leverage, I can lose everything I put into crypto, and I diversified my crypto portfolio. Moving forward I'm staying away from projects with a "stable coin" component as I don't think the fundamentals work.
If anyone has come across an analysis framework for other crypto projects please let me know.
> Moving forward I'm staying away from projects with a "stable coin" component as I don't think the fundamentals work.
Not all stable-coins are the same. Out of all of them USDC seems to be the strongest out of the rest of them and is more likely to survive in the long term out of the others.
That does not mean you should put your whole savings into it. It is still very early for stable-coins. I would rather wait for regulatory clarity to define a set of rules that will wipe all the meme-coins, tokens, copy-paste projects and any crypto project that doesn't fit the incoming regulatory framework for crypto and only then will stable-coins like USDC will improve.
Regulations for crypto is inevitable and is only going to make some coins that are compliant stay for much longer and separate the non-compliant ones into obscurity or non-existence.
Not all of these crypto projects will survive. When the tide lowers, we will be seeing who is swimming naked and it looks like these DeFi projects have been caught after the hype has died with the market sentiment turning bearish for crypto in general.
The ones that will survive this crypto crash are probably going to be around for much longer, especially most cryptocurrency coins and blockchains (and not the ERC-20 tokens)
DeFi projects are doing just fine and work as expected. All these news are about centralized finance companies being irresponsible if not outright malevolent
Well its a business predicated on btc going up, in bear market you literally incentivize people to take up as much debt in btc as possible to repay it for pennies on dollar.
Question for the crypto skeptics of HN. Do you think this cycle the whole crypto space goes down the drain never to be heard of again? Do you think the whole space is a fad or do you think there are patches of values underneath the froth? How do you see the space evolving? Thanks!
I think a similar thing as with the ICO boom will happen: The current mechanisms of fraud (ICOs) will become regulated, so the industry will move on and create new ones (NFTs, DeFi/"yield"). This cycle will continue until the SEC stops listening to smoothtalking lobbyists fearmongering about the SEC blocking "important innovation" and decides to fully pull cryptocurrency into the banking regulatory framework. At that point, lacking the ability to do things that are illegal to do for good reasons, cryptocurrency becomes pretty irrelevant.
I believe we're seeing the end of "retail crypto." Just like agricultural futures, crypto will continue to exist but will mostly be known outside of institutional trading as a good way to lose your shirt.
As far as underlying value goes: one thing we've learned from the constant scamming is that a protocol designed for trustless interactions will inevitably devolve into purely adversial interactions. Consider it a social application of Gresham's law. Central banks, multinational corporations, and others who can marshal the resources to perform extensive audits will probably use smart contracts on a proof-of-stake chain for large, adversarial transactions that occur outside of any one nation's jurisdiction. Everything else will continue to be based on trust, just like it always has been.
> Do you think this cycle the whole crypto space goes down the drain never to be heard of again?
No. The crypto/scam space will be back because people love to gamble and love the concept of easy money.
> Do you think the whole space is a fad or do you think there are patches of values underneath the froth?
There is crypto/scam space and there is Bitcoin/Monero space. The actual decentralized cryptocurrencies are widely used where fiat system fails, like on DNMs.
I think basically the whole space is a fad, but fads don't usually disappear entirely. Beanie babies were a fad; they are no longer a fad; this doesn't seem to affect my niece's enjoyment of the beanie baby we bought for her last year.
My approach is to stay away until the fad dies, and then look to see if any part of it is useful to me. The last time I made a serious evaluation of something in that space was Bitcoin; it didn't serve any use case I had; but maybe there's been some innovation in the space that is hard to find behind the fad hype.
Regardless, I think bitcoin survives. I don't think it has patches of value, but I do think others think that it does.
I think eventually bitcoin fills the same space as "no programming knowledge required coding tools". Every few years it'll spike as this time they know went wrong the last time. And then the inevitable happens.
Unfortunately scammers will always find new suckers for their ventures. People lose money to pyramid selling/MLM scams in real life all the time. Cryptocurrencies just made it possible to recruit suckers on a global scale.
Unless governments step in and ban them, there will always be new crypto scams.
I think it is way too early to discard the underlying technology and I think/hope that parts of the open source ecosystem will survive. Reckless speculation being the current primary use case does not mean there won't be any societally more beneficial use case in the future.
This feels a bit more likely to be the end than previous collapses (last time round, the ecosystem wasn't advanced/broken enough to show the sort of contagion hitting it now). On the other hand, never underestimate the ability of fools to be parted from their money; see NFTs, for instance. It's quite likely that there'll be another crypto-y... thing along sooner or later.
It's notable that classical Ponzi schemes come back in the real world from time to time; they just need a very light reskin, and people buy in again. Plausible that the same happens with crypto to some extent.
I think the killer app for crypto (money laundering/buying drugs online) will provide some kind of cushion against going straight to zero. But that is a much smaller cap.
I'm not a crypto/finance expert, but the current crypto space reminds me of the early US "Free Banking" era. Too many players, wild west, many earners, and many losers. There is a tech & concept value in crypto space, so I don't think it will go down the drain. It will take time to stabilize, just like US banking sector.
Depends entirely on the regulatory framework. Up until now crypto has been largely unregulated. With regulatory I don’t think it will be as volatile/attractive.
I'm as skeptical of crypto as anyone, but I do think of it as an actual innovation of an asset class, and so I have to imagine that it will remain in some form.
Until 99% of people understand that money is a mean of redistributing the production, it will come back. Id give cryptocurrencies 4 years after peak oil
I found it amusing that this notice says "Due to the current situation, Babel Finance is facing unusual liquidity pressures" and their homepage says "Seeking Certainty in Uncertainty".
That's what you get in a zero-interest rate environment with no industrial policy. Building physical infrastructure would cost real-world money and cut into profits, hence what you end up with is virtual casinos.
No one is better off with that. At least in the runup to 2008 there was housing built speculatively, but since then there has been no productive investment at all.
> That's what you get in a zero-interest rate environment with no industrial policy.
There was a complete lack of any kind of policy in almost all major Western countries. Since the competitive pressure of the USSR fell away, Western politics have stagnated - keep the economy as-is, maybe lower corporate taxes and privatize government services. The only thing where a bit of progress happened in politics were social equality issues (gay marriage, access to abortions) and that's it.
But no government really thought about what digitalization would bring, how to regulate it to prevent the rise of new exploitation models (gig workers) or speculative bubbles (dotcom bubble, the current shitcoin collapse), or how the economy should transform to the new possibilities and realities.
The result is - we've seen it all - not pretty... the economy clearly wants directions from politics where it should go (particularly in the automotive industry), and a ton of money was blasted into cryptocurrencies, NFTs and other scams simply because there was no direction where money should go instead. If one wants to boil it down, I'd call it "this is what happens when the free market takes ultimate control over everything".
“This is great for crypto. All the ponzis are going down and the legit companies are the ones that remain”
Reality: The public trust on crypto erodes more and more when one of these companies goes down. There is no greater fool to make your hodl-ed assets valuable.
ceejayoz|3 years ago
> Anonymous sources who claim to have inside knowledge allege that Babel Finance has been misusing client funds via highly leveraged transactions and without permission.
(Oh, look, Tether's involved again. How much of the $160M in their claimed "shareholder capital" at https://tether.to/en/transparency has evaporated in the last month? They're currently claiming it hasn't changed by more than $50 since a month ago; https://twitter.com/jjjbtc/status/1524819806892982272)
jcranmer|3 years ago
If you need any strong suggestions that Tether's asset statements are a pack of lies, this is it. They claimed to have--before the cryptocurrency collapses started--an equity buffer of around 0.2% of total assets. Now they claim to have unwound ~10% of those positions in a market environment where selling any of those assets (even something like US treasuries!) would realize enough loss to wipe out that buffer. Instead, their equity buffer increased by something like 0.00001%.
gonzo41|3 years ago
Whilst I DO think crypto is a scam, or at best a very terrible waste of time and effort from all involved. I will accept that I could be wrong.
But, scam or not, this early turbulent history will cement a stigma of crypto being synonymous with grifters and scammers. I don't see a future in it.
It'll be interesting to see if btc breaks through the 20k barrier today and what effect that has on the hype.
kayamon|3 years ago
Once all the dust settles down Bitcoin will keep ticking along just like it's been doing for years.
O__________O|3 years ago
* As is, while clearly some of these failures have had a massive impact, there clearly a lot of DeFi projects of significance still standing:
https://coinmarketcap.com/view/defi/
VHRanger|3 years ago
Here are dominos to fall ahead of us:
- BlockFi
- Voyager
Somewhere down the line, tether is also standing. We know they're insolvent, the question is when redemptions become a problem. And at that point, the abyss
hhmc|3 years ago
but other than that how was the play Mrs Lincoln?
cdiddy2|3 years ago
Celsius/3AC/Babel are all not defi and we would know about their health and risk factors much sooner if they were defi.
aaaaaaaaata|3 years ago
[deleted]
fakedang|3 years ago
Edit:- the cycle of upvotes and down votes on this comment hahaha....
yessirwhatever|3 years ago
Barrera|3 years ago
> At the end of 2021, Babel Finance had an outstanding loan balance of over $3 billion, up from $2 billion the previous February. It averaged $800 million in monthly derivatives trading volume and had structured and traded over $20 billion in options products.
https://www.coindesk.com/business/2022/06/17/babel-finance-s...
The ripple effects here are going to be substantial and unpredictable. This was a toy bank/hedge fund that grew to monstrous proportions. Now that bank is experiencing a run and it has done what every bank before it facing a similar problem has done: blocked withdrawals.
Please explain to me the difference between a bank and a Ponzi Scheme.
youessayyyaway|3 years ago
Banks are forced to abide by regulations and laws dictating how fractional-reserve organizations are allowed to operate. In return, peoples' deposits are backed by the government up to $250k (in the US).
Ponzi schemes ignore regulations and laws, and their customers' deposits are not insured or backed by any organization.
The laws that banks are forced to follow may be woefully insufficient, but the government is incentivized to prevent serious collapses because they would be on the hook for a lot of money. Retail customers are also less likely to start a run if they trust that someone will be there ready to hand over their cash when the dust settles.
BobbyJo|3 years ago
The story of the 3 little pigs comes to mind. "The first pig made his house out of straw...".
jtode|3 years ago
[deleted]
icu|3 years ago
For example, with Terra the abstraction was that pegs don't work as we've seen many a time, especially when Soros broke the BoE. I took a small bath with my Terra holding and life goes on. I can do that because I didn't use leverage, I can lose everything I put into crypto, and I diversified my crypto portfolio. Moving forward I'm staying away from projects with a "stable coin" component as I don't think the fundamentals work.
If anyone has come across an analysis framework for other crypto projects please let me know.
shafyy|3 years ago
bhaak|3 years ago
There's an even easier metric for measuring crypto project. The bigger and dumber the shill army the more shady the project.
tenpies|3 years ago
Is it offering Argentina/Turkey returns? Then they're probably the Argentina and Turkey of crypto.
rvz|3 years ago
Not all stable-coins are the same. Out of all of them USDC seems to be the strongest out of the rest of them and is more likely to survive in the long term out of the others.
That does not mean you should put your whole savings into it. It is still very early for stable-coins. I would rather wait for regulatory clarity to define a set of rules that will wipe all the meme-coins, tokens, copy-paste projects and any crypto project that doesn't fit the incoming regulatory framework for crypto and only then will stable-coins like USDC will improve.
Regulations for crypto is inevitable and is only going to make some coins that are compliant stay for much longer and separate the non-compliant ones into obscurity or non-existence.
smarx007|3 years ago
https://www.investopedia.com/terms/t/technicalbankruptcy.asp
rvz|3 years ago
The ones that will survive this crypto crash are probably going to be around for much longer, especially most cryptocurrency coins and blockchains (and not the ERC-20 tokens)
delaaxe|3 years ago
highwaylights|3 years ago
me_me_me|3 years ago
redox99|3 years ago
api|3 years ago
sdze|3 years ago
gzer0|3 years ago
Definitely think that their homepage slogan needs an update after this.
aaaaaaaaaaab|3 years ago
rootsudo|3 years ago
werdnapk|3 years ago
ryanSrich|3 years ago
tartoran|3 years ago
lifty|3 years ago
ceejayoz|3 years ago
ATsch|3 years ago
giaour|3 years ago
As far as underlying value goes: one thing we've learned from the constant scamming is that a protocol designed for trustless interactions will inevitably devolve into purely adversial interactions. Consider it a social application of Gresham's law. Central banks, multinational corporations, and others who can marshal the resources to perform extensive audits will probably use smart contracts on a proof-of-stake chain for large, adversarial transactions that occur outside of any one nation's jurisdiction. Everything else will continue to be based on trust, just like it always has been.
New_California|3 years ago
No. The crypto/scam space will be back because people love to gamble and love the concept of easy money.
> Do you think the whole space is a fad or do you think there are patches of values underneath the froth?
There is crypto/scam space and there is Bitcoin/Monero space. The actual decentralized cryptocurrencies are widely used where fiat system fails, like on DNMs.
amalcon|3 years ago
My approach is to stay away until the fad dies, and then look to see if any part of it is useful to me. The last time I made a serious evaluation of something in that space was Bitcoin; it didn't serve any use case I had; but maybe there's been some innovation in the space that is hard to find behind the fad hype.
bena|3 years ago
I think eventually bitcoin fills the same space as "no programming knowledge required coding tools". Every few years it'll spike as this time they know went wrong the last time. And then the inevitable happens.
aaaaaaaaaaab|3 years ago
Unless governments step in and ban them, there will always be new crypto scams.
timkam|3 years ago
rsynnott|3 years ago
It's notable that classical Ponzi schemes come back in the real world from time to time; they just need a very light reskin, and people buy in again. Plausible that the same happens with crypto to some extent.
airza|3 years ago
unknown|3 years ago
[deleted]
dig1|3 years ago
mjthrowaway1|3 years ago
hotpotamus|3 years ago
orwin|3 years ago
romanovcode|3 years ago
Same as MLM/Hype evolved to Crypto/NFT. Some new pyramid will come in place for the next generation.
bikeshed|3 years ago
Do I hope this will be the cycle though? Oh absolutely.
O__________O|3 years ago
Even with the market as is, today it’s still a trillion dollar industry.
unknown|3 years ago
[deleted]
mousetree|3 years ago
Jorge1o1|3 years ago
What’s next… Icarus Investments?
unknown|3 years ago
[deleted]
HarryHirsch|3 years ago
No one is better off with that. At least in the runup to 2008 there was housing built speculatively, but since then there has been no productive investment at all.
mschuster91|3 years ago
There was a complete lack of any kind of policy in almost all major Western countries. Since the competitive pressure of the USSR fell away, Western politics have stagnated - keep the economy as-is, maybe lower corporate taxes and privatize government services. The only thing where a bit of progress happened in politics were social equality issues (gay marriage, access to abortions) and that's it.
But no government really thought about what digitalization would bring, how to regulate it to prevent the rise of new exploitation models (gig workers) or speculative bubbles (dotcom bubble, the current shitcoin collapse), or how the economy should transform to the new possibilities and realities.
The result is - we've seen it all - not pretty... the economy clearly wants directions from politics where it should go (particularly in the automotive industry), and a ton of money was blasted into cryptocurrencies, NFTs and other scams simply because there was no direction where money should go instead. If one wants to boil it down, I'd call it "this is what happens when the free market takes ultimate control over everything".
unknown|3 years ago
[deleted]
unknown|3 years ago
[deleted]
k__|3 years ago
throwingrocks|3 years ago
b0sk|3 years ago
Reality: The public trust on crypto erodes more and more when one of these companies goes down. There is no greater fool to make your hodl-ed assets valuable.
unknown|3 years ago
[deleted]
Gatsky|3 years ago
kwertyoowiyop|3 years ago
unknown|3 years ago
[deleted]
gbronner|3 years ago
highwaylights|3 years ago
BuT tHiS Is aLl A nEw PaRaDiGm!
unknown|3 years ago
[deleted]
kwertyoowiyop|3 years ago
https://babel.finance/join-detail.html?id=9
unknown|3 years ago
[deleted]
kosyblysk666|3 years ago
[deleted]
unknown|3 years ago
[deleted]