28 Jun 2022

Crypto lending platforms experiencing a massive stress test

Uncertainty related to the collapse of 3AC, corresponding defaults, and lending platform Celsius’ halting of withdrawals as they face a potential bankruptcy is leading to a vicious withdrawal cycle on other centralized lending platforms.
Nexo Armanino.svg
Source: Nexo, Armanino, WebArchive (Wayback Machine)
Voyager is, per current public knowledge, the most distressed lending platform following the 3AC collapse. On Monday, Voyager issued a notice of default to 3AC of a loan amounting to 15,250 BTC and $350m USDC.The platform fulfills customer withdrawals and has accessed a 15,000 BTC and $200m USDC revolver from FTX, in which no more than $75m may be drawn over any 30-day rolling period. Voyager has accessed the $75m line of credit made available by Alameda.Still, in a Wednesday press release, Voyager announced $152m cash and owned crypto assets at hand, vs. $137m cash and owned crypto assets at hand on Monday, suggesting substantial customer withdrawals over the last week.
Source: Voyager
Nexo attestations
Assessing the state of the other crypto lenders is difficult due to a general lack of transparency. However, Nexo provides daily attestations through the accounting firm Armanino.
Nexo Armanino
Source: Nexo, Armanino, WebArchive (Wayback Machine)
By accessing previous data through the Wayback Machine, we find that Nexo has experienced outflows equivalent to 58,478 BTC since May 12th, with withdrawal activity rising over the weekend following twitter threads by otteroooo later addressed by Nexo. The growing withdrawals suggest that users of crypto lending platforms are getting more cautious amid the growing uncertainty in the market, leading to a bank run and a vicious feedback loop for lending platforms, which already experience massive pressure pending the unresolved 3AC contagion.Nexo has said that the firm had zero exposure to Three Arrows, but they are the only lending provider following a proof of reserves methodology through daily attestations provided by Armanino and is thus a great source for examining the high temperature in the crypto lending market.
The contagion and bankrun is evident everywhere in the lending market
The increased withdrawals are not an isolated Nexo or Voyager case. It happens across the entire lending market. BlockFi’s CEO Zac Prince announced on the On The Brink podcast that BlockFi had experienced withdrawal volumes in the week after the 3AC liquidations of greater than 10% of their overall balances while noting that the withdrawal volume was softening last week. In addition to offering a line of credit to Voyager, FTX/Alameda has also offered a $250m line of credit to BlockFi. Morgan Creek Digital, who have participated in BlockFi’s seed A through D fundraising rounds, have responded by attempting to raise $250m in equity capital to BlockFi, noting that the credit line could enable FTX to buy BlockFi at essentially zero price. Hodlnaut co-founder JT also announced net outflows of 35% of their AUM over recent weeks in a twitter thread.
There ain't no such thing as a free lunch
What we’ve witnessed in the last couple of weeks is a massive stress test of centralized crypto lenders, driven by Luna and 3AC-related contagion. While the second-order effects of these pressuring conditions remain uncertain, crypto owners should learn that there ain't no such thing as a free lunch. These interest rates originate through the introduction of new risk elements to already volatile crypto assets. Disclaimer: Nexo is a sponsor of Arcane’s weekly market update, but Arcane is editorially independent and has full autonomy over the content produced. In addition, Arcane produces content for other third-parties, including BlockFi.
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