The big laundry of the cryptocurrency industry

Blockchain Chronicle. The fall of the last few days lengthens the list of weakened players in the crypto sector. The opportunity to wash and sort dirty laundry.

In a bull market, everyone is an investment genius. It was even customary for native cryptocurrency players to mock banks and the so-called traditional financial system. During these times of euphoria, almost all cryptocurrencies appreciate. It is therefore easy to see wings grow.

But as Icarus experienced, it is still necessary to know how to use these wings in moderation: a brutal fall followed by the onset of a bear market offers a discriminating period to separate the wheat from the chaff. As a result, players like Coinbase or Blockfi have announced, in addition to the hiring block, the shrinking of their workforce.

In the spotlight there are two types of actors:

First, the actors of the CeFi (Centralized Finance).

In fact, Celsius has suspended the possibility of withdrawing its capital for its customers. This decision is explained by this player’s lack of risk management. The company offers to deposit its cryptocurrencies in exchange for an interest rate, itself funded by Celsius investing those cryptocurrencies.

However, the company is not subject to guarantee measures or the obligation to respect liquidity ratios, with the absence of transparency in investment choices. Celsius had already suffered a loss of $ 120 million under the Badger decentralized finance protocol, which has since been partially reimbursed by the protocol. Additionally, Celsius had filed UST on the Anchor protocol, the disastrous fate of which has been known ever since. Addresses marked Celsius were already showing huge positions in products like Lido, which offers Aether Block as part of the transition to Ethereum 2.0. With these ether blocked, the positions are currently illiquid, therefore a risk of a “bank run” with the spread of the contagion.

The sudden drop in prices can cause the weakening of other dogmatic actors.

Blockfi, on the other hand, had paid the SEC a fine of 100 million for its offer which was deemed to not comply with the laws on financial securities in 32 US states. This was the regulator’s first warning shot that it had this type of platform in its sights. Furthermore, the deterioration in market conditions is leading investors to review the valuation of these projects. According to TheBlock, the valuation of the round under discussion for Blockfi would increase from $ 5 billion to $ 1 billion.

Celsius’s competitors try to show their credentials in risk management, but the opacity doesn’t inspire confidence. The stress test is massive for these players in view of the withdrawals required by customers to recover their capital. This is the first bear market for these players with billions or even tens of billions of assets under management.

Nexo as such has issued a letter of intent to repurchase the capital and assets of Celsius. The next period will be conducive to acquisitions of weakened players from competitors who will have maintained investor confidence. Recent funds such as Andreessen Horowitz’s third vehicle with over $ 4 billion rightfully hit the market to provide the necessary liquidity.

In addition to CeFi platforms, hedge funds are also not excluded.

Three Arrows Capital has been one of the hedge funds at the forefront of this bullish cycle with holdings in Blockfi, Starkware or Fireblocks, as well as tokens from different blockchains and decentralized financial protocols.

In addition to these holdings or holdings, the structure was customary for aggressive transactions with leverage effects. One such co-creator Zu Shu theorized the “Super Cycle” concept by explaining that the industry would grow to significant levels. This thesis ignores the financial cycles in which the price of the assets can be decorrelated from the fundamental value.

The structure would have undergone liquidations for 400 million according to TheBlock media.

The sudden drop in prices can cause the weakening of other dogmatic actors.

Paradoxically, decentralized finance supports many debt positions on AAVE or MAKER DAO and is resilient in complicated market conditions. In DeFi, transparency brings certainty and trust.

The sector will be sanitized by the liquidation of the bad actors. Humility is an essential value, which you learn after crossing the desert of a bear market where the effervescence vanishes in a snap of your fingers.

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