The crypto rescues have begun. Is this the only way?

by Arthur · July 10, 2022

FTX CEO Sam Bankman-Fried has rushed to the rescue of ailing crypto companies so quickly in the midst of the current crash that he is being compared to John Pierpont Morgan (the man himself, not the bank) in 1907. Now his rivals are noticing, and they want to join in the rescue race.

Last month, FTX extended a $ 250 million line of credit to the battered cryptocurrency lender BlockFi. One day later, Alameda Research, another SBF company, gave Voyager Digital a credit limit of $ 500 million. Two weeks later, FTX agreed to buy BlockFi directly. SBF is said to have gone away from giving Celsius a similar rescue. And he told Reuters last week that FTX still has “a few billion” to help other companies with one foot in the grave.

This is not about generosity, and it is difficult to see this as positive for the crypto industry.

In Voyager’s case, it turns out that Alameda already owed Voyager $ 377 million. It is not often you see a borrower save their lender. Binance chief CZ criticized the Voyager rescue, telling us in an interview for the next GM podcast: “I would never make that kind of deal. I would never say, ‘I want to invest in your company and then you lend me some money. ‘ I just did not want to invest in that company, I keep my money. “

Fair enough. But CZ will obviously be part of the rescue package. He told us, “We are looking at a high number of agreements” in the midst of the cryptocurrency crisis, “and some of them are actually good agreements. So I think you will see that we will invest, save, save more projects.”

Never one to miss a chance for the press, Tron boss Justin Sun said Blocks that he is prepared to pay out $ 5 billion to help ailing crypto companies.

Cool. But these rescue packages do not seem to me to be a healthy way out of the current depression in the crypto market. (Side note: Is it fair and accurate to refer to these economic lifelines as “rescue packages”? I think so; some disagree.)

Celsius, BlockFi, Voyager and other cryptocurrencies that promised high returns on user deposits always looked too good to be true, and they were. They had delusions about business models that assumed a “just up” market environment. Do they deserve to be saved?

To be fair, as CZ pointed out, it is better for users for companies that had their money to be acquired instead of closing. “This means that users do not lose money or hopefully lose less money,” he told us. He was also hesitant to shame the high-interest borrowers. His opinion: When the crypto market flourishes as it was in 2020 and 2021, “If your project only gives 2% return, and then this other project gives 10% return, guess what, you will lose users. It is a herd behavior: If anyone else does this, I have to do it to stay competitive. “

But CZ also published a blog post on June 23, an obvious subtweet of the SBF, in which he stated, “Do not perpetuate bad companies. Let them fail.”

I like that thought. I tend to believe that the current Crypto Winter will wash out the weak, fly-by-night players and that the strong companies and projects will survive; the wheat will differ from the baits.

But CZ will completely contradict himself if he jumps in now and starts making his own rescue packages.

This is the editor’s nodea recurring weekend column from Editor-in-Chief Daniel Roberts. Read the previous issue: A story about two NFT parties: Doodles vs. Goblintown.