Crypto has slowly bled trillions since November, wiping out one big player at a time.

But how exactly did the giant crypto institutions fall, in what order, and why?

Today, we'll map out contagion in crypto and try to take lessons from the collapse:

Much can all be traced back to Grayscale BTC, crypto's first publicly-traded BTC fund.

The way GBTC works:

• Deposit bitcoin in the fund
• Get $GBTC shares after a 6 months

At first there was huge demand for the fund, so it traded at a premium to BTC
If the fund had 99 BTC under management, you could deposit 1 BTC (worth, say $10,000), wait 6 months, and get 1% of the fund's shares.

Since the fund was trading at a premium to assets under management, it was a good trade.

Every $1 of $BTC deposited yielded $1.30 in shares. Image
Who took part?

• Bitcoin miners
• Three Arrows Capital (held ~6% of the trust)
• BlockFi

The problem?

After a while, $GBTC no longer traded at a premium, but a discount. Players ended up underwater on their BTC.

A trade that at one time earned 30% suddenly LOST money.
The fund basically created a $6b black hole based on this $GBTC discount, with big institutions having to hold shares underwater in the hopes that they could eventually redeem at face value.

It was the first time we saw liquidity getting sucked out of the crypto space at scale.

While a tightening macro environment didn't help, the next chink in the armor was the Luna collapse.

If you're not familiar, my friend Jon Wu explains below:

Who was exposed to Luna?

Well, a ton of retail money, but also a lot of VCs: Image
Institutions as well got hit, with lenders like Celsius being the biggest one, you can read about their insolvency crisis here:

The most recent liquidity crisis was around Lido Staked Eth, called stETH:

• stETH represents $ETH tokens earning interest and locked on the beacon chain
• These tokens typically trade at a slight discount to $ETH

Most people count on them to more-or-less hold parity with ETH
Many people use stETH to earn interest, and quite a few of them also borrowed against these stETH positions.

When Celsius and 3AC effectively got liquidated, they sold their stETH, further reducing the discount, pushing more people into liquidation: another death spiral. Image
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With 3AC outright MIA post stETH dump, the next wave of contagion began.

Anyone directionally aligned with 3AC or the assets they held is negatively affected by the market dumping of their assets.

The following industry players appear to be profoundly affected:
• Voyager Digital, a publicly traded digital asset exchange/broker that lent 3AC over $670m on an unsecured line of credit (probably toast)

• DeFiance Capital, which operates as a sub-fund of 3AC (might be ok)

• FinBlox, a crypto savings platform (paused all redemptions)
And now, one of the only assets that 3AC hasn't yet liquidated is an NFT called 'CryptoDickbutt #1462'

It's the absolute icing on the cake.

Who else is affected?

@ApeDigest put together a nice spreadsheet documenting the extent of contagion.

Some names you've heard of that are now likely reeling post GBTC/Luna/Celsius/3AC are:

• Maple Finance
• Genesis Global Trading
• Babel Finance
• 8 Blocks capital
Centralized lenders/custodians have been the worst-hit, likely because of poor lending decisions and the lack of transparency from these services.

Ironically, this is something that DeFi largely protects users against. Image
For Voyager Digital, it doesn't look good.

Today, FTX just announced the purchase of BlockFi for $25m, a distressed asset that once was valued at $4.4 billion now hyper-discounted based on its obligations.…
Meanwhile, Goldman Sachs is rumored to be an interested party in Celsius.

While it's possible that the worst is behind us, there are plenty of players that can still blow up:

• Exchanges begin to fail
• Michael Saylor's Micro-Strategy is liquidated
• Heavy gov't regulation of the space
• Centralized stablecoin issuers fail (HIGHLY unlikely)
I'll leave you with this. Image
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More from @JackNiewold

Jun 27

Are there any 'fundamentals' in crypto? Do real cash flows even exist? Is value accrual a meme?

I went on a hunt and found five crypto projects distributing actual cash flows to users:
When faced with criticism around crypto, we often hear the following:

But it's simply not true: if you know where to look, there are plenty of on-chain crypto products/businesses that produce meaningful cash flows.

But a lot of those are disqualified as meaningful investments for a few common reasons:
Read 22 tweets
Jun 21
Crypto is reaching a breaking point, and it has nothing to do with the Fed, Celsius, jpegs, or DeFi.

It's us.

We, the users, are destroying crypto.

Let me explain:
Crypto is ultimately a tool for governance:

Blockchains are only static if we decide to make them static, so far we have decided to make them static via governance and consensus.

Ultimately the unchangeable/immutable aspects of crypto have been provably valuable recently. Image
Some examples:

• No one can take away your tokens
• No government or institution can censor your ability to transact
• No one can stop you from trading at any time
• No one can reverse transactions

All of these things are things we value, things that are different in TradFi
Read 21 tweets
Jun 17

If you're down bad, so are most people in the space.

What matters now is your plan to take advantage of the opportunity that this bear market presents.

Here are four strategies I would employ if I was trying to make it in the next cycle:
First, let me give you the bad and good news:

• If you're down bad and stick to the same strategy that got you here, you will not make it.

• If you figure out a strategy to gain a consistent, systematic edge in crypto, you will make it.
Secondly, you will not find an edge in this space without hard work. It just won't happen.

Work for the edge. Stick to it. There's no such thing as a free lunch.
Read 25 tweets
Jun 13

Huge sectors of crypto are imploding, and crypto unicorns might be coming down with it.

Luna was first, but now $10b giant Celsius is facing insolvency and even bankruptcy.

Let's dive in:
What is Celsius?

In the last few years, we've seen the rise of so-called Centralized DeFi-companies that custody/manage crypto on behalf of investors.

They take your money/crypto, promise you a fixed interest rate, and then put it on-chain and use it in DeFi to earn a yield. Image
While they advertise their services like that of a bank, the service is almost more like a hedge fund or asset manager--these strategies have some risk involved and require supervision.

And how do they make their money? Image
Read 27 tweets
Jun 6

A thread on how the last 180 days have affected crypto fees and revenue:
I was inspired to make this thread after looking at a chart of Compound Protocol's revenue.

Since November, the project has gone from $1m in daily revenue to less than $100k a month.

But is this unique? Do all crypto protocols depend on up-only markets to sustain rev?
Many people (including me) pointed to strong revenues and claims of product-market-fit as evidence that crypto had really reached an inflection point.

But with many crypto revenues down further than the assets themselves, it's fair to say that those revenues aren't sticky.
Read 17 tweets
Jun 3
Some positive crypto news, cause we really need it:
Total Value Locked in DeFi first surpassed $100b in 2020, and it still remains above $100b.

Compare that with under .5b exactly 3 years ago.
Coinbase is launching a crypto app store that will help expose their $200b in AUM to the broader DeFi ecosystem.

I'm catalyzinggggg.

Read 12 tweets

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