Three Arrows, Voyager failures raise questions of who is next in crypto fall from grace

Three Arrows, Voyager failures raise questions of who is next in crypto fall from grace

The crypto winter is killing off companies that took on big risks when markets were booming. So is this the shakeout all financial markets go through?

Hedge fund Three Arrows Capital (3AC) looks like the biggest casualty of the crypto price collapse so far after filing for bankruptcy in the U.S., but according to blockchain business advisor Anndy Lian, the worst may be yet to come.

“It will have a snowball effect,” said Lian, who is a fund manager for blockchain investments at Passion Venture Capital Pte. in Singapore and advises Mongolia’s government on the industry.“[The impact] will not just be on 3AC, it will be on 3AC’s involvement as an investor or as a fund manager, then it will snowball down,” Lian said in an interview with Forkast.

That snowball has already hit crypto lending platform Voyager Digital Ltd., which filed for Chapter 11 bankruptcy on Wednesday in New York. Yet as more companies get swamped, some in the industry are calling it a necessary shakeout after the excesses of last year’s record-setting crypto price surge.

Voyager Digital had earlier halted or limited customer withdrawals, a move adopted by other lenders such as BlockFi. Crypto exchange Celsius was one of the first lending and staking platforms to halt withdrawals in early June, citing the common refrain “extreme market conditions.”

The collapse of Terra, which some argue helped trigger the bankruptcies now being filed, saw its Luna token fall from the ranks of a top 10 cryptocurrency with a market capitalization of almost US$30 billion to effectively zero in a matter of days.

Broken arrow

Any firm with significant exposure to the Terra project was hit hard by the collapse, including 3AC, which had a US$200 million investment in Luna Foundation Guard, the organization behind the Terra stablecoin, effectively wiped out when the project went south.

As 3AC sank into funding trouble, Voyager got hit after disclosing it had loaned over US$650 million in the USDC stablecoin and Bitcoin to 3AC, which it might not be getting back. BlockFi was among the lenders that foreclosed on roughly US$400 million in loans to 3AC.

Chapter 11 generally allows for a company to come up with a plan to pay off creditors and rebuild the business.

In the crypto boom times, many of these companies with lending and staking platforms were venturing into ever more risky areas for profits, Igneus Terrenus, head of communications at crypto exchange Bybit, said in an interview with Forkast.

“It’s almost a repeat or like a rhyming [with] what happened with the subprime mortgage crisis (which led to the Global Financial Crisis of 2008),” he said. “These firms just have to go further and deeper into more risky area because there is so much appetite.”

One of the world’s largest investment banks, Goldman Sachs is said to be looking to raise US$2 billion to buy distressed assets from Celsius, though Goldman hasn’t commented on the speculation.

Smaller pond

Companies native to the crypto industry are also looking for opportunities, with Bahamas-based crypto exchange FTX providing a US$400 million loan to BlockFi that includes an option to buy the troubled crypto lender.

Buying these firms out is a “smart move” Terrenus said, not only as a business opportunity, but in the case of FTX it creates a positive impression of a “savior” within the industry and grants confidence back to those firms and the market in general.

While the so-called contagion spreads in the crypto industry, it hasn’t reached broader traditional markets — this time around.

In its recent Financial Stability Report, the Bank of England highlighted how vulnerabilities in the crypto market, such as over-leveraging and breakdown of confidence in stablecoins, have contributed to the crypto crash.

The BoE recommended increased regulation of the industry to minimize the risk to broader markets as crypto adoption grows and become further entwined within traditional finance.

“It happens to everybody,” he said. “The fact that it’s happening to crypto now I don’t think should come as a surprise to people. The really important thing is what the crypto industry does now that it’s happened.”

Some of these firms will have to look at strengthening their balance sheets and internal controls, Sullivan added.

Many of these firms that are in trouble at the moment are not true DeFi (decentralized finance), but traditional centralized businesses just focused on cryptocurrency, he said.

Total value locked in these protocols has decreased in the past few months, but there have not been the collapses as has been seen in more centralized firms.

“Decentralized protocols actually performed exactly how they intended to and avoided the perils that the likes of BlockFi, Celsius and Voyager are experiencing,” Sullivan said.

Original Source: https://forkast.news/three-arrows-voyager-failure-crypto-fall-from-grace/

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

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Crypto Fundraising in 2022: More VC, Metaverse, Gaming, and Regulatory Questions

Crypto Fundraising in 2022: More VC, Metaverse, Gaming, and Regulatory Questions
  • Established VC firms are now realizing that crypto is the next great wave of tech.
  • Investors will be focused largely on projects operating within the metaverse, Web 3, DeFi, NFT, and gaming sub-sectors.
  • Current metaverse-related projects need to improve the social aspect of their platforms before attracting the really big bucks.
  • One important question remains: does the increasing involvement of VC funds in crypto make it likelier that the SEC will tend to view cryptoassets as securities?

 

The nascent crypto industry is very dependent on funding. Not just the funding we’ve seen in the form of various coin offerings and private fundraising, but also the indirect funding that occurs whenever retail traders buy a cryptoasset and boost its price, thereby increasing the value of funds held by blockchain platforms and their developers.

The past few years have witnessed an evolution in crypto funding, however, with the initial coin offering (ICO) wave of 2017 and 2019 gradually giving way to more traditional venture capital (VC). And as the US Securities and Exchange Commission (SEC) continues its legal battle with Ripple, it’s highly likely that this trend will only deepen in 2022.

According to industry figures speaking with Cryptonews.com, more traditional VC firms and investment funds will turn towards crypto and blockchain this year, further pushing public token offerings into the margins. And they’ll be focused largely on projects operating within the metaverseWeb 3, and gaming sub-sectors.

More VCs venture into crypto

2021 may have been a great year for crypto in terms of rising prices and market activity, but it was also a record-breaking year as far as more traditional venture capital funding was concerned.

Data compiled by PitchBook shows that, over the course of 2021, venture capital funds invested around USD 30bn in crypto- and blockchain-related firms. This is more than four times the previous record total set in 2018, and it’s also more than all other years combined.

This breakthrough amount has set a new precedent and created a new model for the industry, with the USD 30bn total also surpassing the record amount of money raised by ICOs in 2018 (which was between USD 11bn and USD 22bn, depending on who you ask). And given that the SEC is suing Ripple for allegedly conducting an unregistered securities offering, 2022 is likely to see more projects looking to VC funds for investment.

“Established VC firms are now realizing that crypto is the next great wave of tech, like the Internet itself and mobile beforehand. They must invest — they have no choice,” said Mark Jeffrey, General Partner at the Boolean Fund and Co-founder of Guardian Circle.

Jeffrey suggests that a VC firm missing out on the next Google or Amazon or Facebook would be catastrophic, not least when they already missed out on Ethereum (ETH)’s ICO, which will potentially prove to be one of the greatest investment opportunities in history.

“So 2022 will certainly see increased interest and investment at an accelerated pace,” he told Cryptonews.com.

Other figures and analysts working within the crypto sector agree that this year will bring an increase in traditional investment firms diving into crypto for the first time.

“Yes, we will see more traditional funds entering into the cryptoverse. Particularly I see that there will be more uptakes from family offices and sovereign wealth-related funds,” said Anndy Lian, the Chairman of the crypto exchange BigONE and the Chief Digital Advisor to the Mongolian Productivity Organization.

As a taster of the kind of entity we can expect to enter crypto fundraising this year, it’s worth remembering that none other than Japanese financial giant SoftBank invested in the Sandbox in early November. In fact, SoftBank also invested in Digital Currency Group around the same time, along with Alphabet (Google’s parent company) and the state-owned Singaporean fund GIC.

This is quite a wide range of different funding organizations, and it’s because a diverse pick of funds are getting involved in crypto that some analysts think, sooner or later, pretty much all major funds will have to be.

“In the mid-90’s, there were internet VCs. By 2000, virtually every VC was an internet VC. Crypto investing is on that same trajectory,” said Lou Kerner, the CEO of Blockchain Coinvestors Acq. Corp.

Targets: Metaverse, gaming, NFTs, Web 3, and DeFi

So assuming that more traditional investment funds and firms will get involved in raising money for crypto, what kinds of projects will they mostly be targeting?

“Metaverse is the hottest space at the moment, and that will likely extend through 2022 and beyond. But we’re still so early in crypto, that every area should see dramatic growth in investments, including gaming, layer 1 and layer 2 protocols, DeFi, and NFTs,” Kerner told Cryptonews.com.

The metaverse (whatever that will actually prove to be) is a theme mentioned by every commenter Cryptonews.com spoke with for the purposes of this article. This includes Mark Jeffrey, who despite suggesting that the metaverse will be the biggest target for funds in 2022, also argues that current metaverse-related projects need to improve the social aspect of their platforms before attracting the really big bucks.

“If you go into Decentraland, you see 500-1000 people — but none of them are talking to each other. They’re all wandering around, together, but alone, looking at scenery — and sure, buying land and avatar pieces — but that’s it,” he said.

Jeffrey predicts that such a model won’t sustain itself, unless it becomes more comprehensively social, with people able to spend hours interacting with each other online, as do on platforms such as Twitter and Facebook.

“But I do have hope that someone WILL crack the metaverse social medium, and one of these offerings will erupt. Once it does, NFT’s and crypto will create a massive opportunity for tens or hundreds of billions to be made,” he added.

Associated with the metaverse, gaming is likely to be another area that gets VC funds hot under the collar in 2022.

“The play-to-earn gaming sector also seems huge, as Axie Infinity has proven. Even though the gameplay is not great, it’s taken off in a big way,” said Jeffrey.

Another area that crops up, along with the metaverse, Web 3, gaming, and NFTs, is DeFi.

“The more specialized [funds] will go for specific verticals; if they are more into the finance sector, they will go for DeFi or investing in the next main chain if they are more tech-savvy,” predicted Anndy Lian.

The regulatory question

One important question remains: does the increasing involvement of VC funds in crypto make it likelier that the SEC will tend to view cryptoassets as securities? Because with funds buying the native tokens of platforms in the expectation that these platforms will grow (via the efforts of an enterprise) and, in turn, make said tokens more valuable, it really does seem as if the Howey test is being satisfied.

For Anndy Lian, this is a difficult question to answer, given that it depends on several variables.

“Personally, the increased number of investments into crypto does not necessarily mean that regulators will see the investments as securities. It depends on the nature of the project, where and how the VCs get them money from, and lastly where do they exercise their agreements,” he said.

For Mark Jeffrey, increased VC funding may incite the wrath of the SEC, although the latter is likely to come down hard on crypto anyway in 2022 and beyond.

“I do think the SEC will attack crypto in general and DeFi in particular in 2022. And [they] will have some success at curtailing activity in the US — but not worldwide,” he said, adding that crypto is growing too fast elsewhere in the world for American regulators to curb its growth too much.

Despite the fact that crypto can operate elsewhere than the US, the likely belligerence of the SEC and other American regulators may seem discouraging. However, Anndy Lian suggests the growing role of traditional VC funds may in fact soften the stance of the SEC and other regulators.

He said, “In fact, I would challenge that such an increase in investments would be good case studies and will act as a benchmarking tool for regulators to know how to further navigate in the crypto space, so as to find better solutions to protect the retail investors.”

 

 

Original Source: https://cryptonews.com/exclusives/crypto-fundraising-2022-more-vc-metaverse-gaming-regulatory-questions.htm

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

j j j