API/RSS

Social

Defiance partner talks about FTX aftershock: Solana may face huge selling pressure

22-11-30 12:46

Read this article in 12 Minutes

AI summary

View the summary

Original title: Dialogue with Defiance Partners: How does the FTX explosion affect encrypted VC? "

Original author: Revelo Intel

Original compilation: Deep Tide TechFlow

On this episode of the Empire podcast, Defiance Capital CEO Arthur joins hosts Jason and Santi of Blockwork to discuss the fall of FTX and its impact on the industry Influence.

Here is a summary of key points about the podcast:

< How is h3>Defiance performing?

Arthur: This has been the hardest six months I've ever had. The Three Arrows Capital (3AC) incident in June made Defiance ready in terms of crisis and risk management.

Defiance primarily uses Binance and FTX and is relatively unaffected by the FTX incident.

Due to recent market conditions, all Defiance funds have been moved from CEX to wallets.

Defiance also conducts OTC transactions with Galaxy etc.

How FTX Dominated in Singapore?

Arthur: The local cryptocurrency trading platform only provides spot trading services.

FTX has a silky UI, better liquidity, and offers perpetual futures trading.

Binance to stop serving Singapore in 2021. MAS (Monetary Authority of Singapore) put Binance on investor warning list.

Although FTX offers the same services as Binance and is based offshore, it has not been included in the investor warning list.

Singaporean sovereign wealth fund Temasek led the latest funding round. The government appears to be implicitly supporting FTX as it is not on the investor alert list and Temasek is also involved.

With Binance inaccessible, FTX was a natural second choice.

Jason:Do you know about Alameda's removal trade, but users continue to use FTX due to tight spreads.

Arthur:No, because Alameda is not the largest market maker of FTX after the first year, there are other market makers providers such as Wintermute. One of FTX's biggest innovations is cross margining.

Has Defiance considered investing in FTX?

Arthur: FTT transactions were only studied in 2019. The deal was later vetoed because Arthur did not believe a new trading platform could compete with an established trading platform.

Never seen equity transactions.

Due Diligence in a Bull Market

Arthur : We are influenced by the speed of market change.

Between the fourth quarter of 2021 and the second quarter of 2022, Defiance has done 5 to 7 transactions per month, which has exceeded expectations.

With plenty of ecosystems and verticals brimming with optimism, it is natural to invest more aggressively.

Less time and resources spent on due diligence.

Defiance will still conduct thorough due diligence, but in some cases not given enough time.

In general, less research is done in a bull market.

The Spread of FTX

Arthur: This It will lead to a sharp drop in liquidity, which may cause some projects to lose a lot of money.

Based on a recent update, Defiance has less than 5 projects in its portfolio that were hit by the FTX debacle. 2 of these companies have a significant amount of money in FTX. There may be more companies affected, but no updates yet.

More than half of the companies in the Defiance portfolio should be fine.

If venture funds are included, the proportion of funds affected by FTX is not high. Most of the new funds in the past 12-24 months have been venture funds and they should not be seriously affected by FTX.

Liquid funds, especially those running active arbitrage and delta neutral strategies, are most likely to be impacted by FTX as they need to keep funds on trade platform.

Does Arthur see the red flags?

Arthur: Alameda has two accounts on the BitMEX P&L leaderboard, which gives them legitimacy.

Alameda is considered a good trader.

We are cautious about FTX/SBF creating new tokens on Solana with high fully diluted value (FDV) and long vesting periods. Consider this predatory and bad business practice, but not fraud.

Didn't expect them to mix user funds as FTX is said to be very profitable.

Has SBF always been this bad?

Arthur: I think the SBF may use the principle of effective altruism as an excuse to justify its actions. SBF aggressively pursues low float high FDV in early 2021 Token , and see no issues with this.

Admiration and popularity in politics convinced him he could do no wrong. I think it's similar to how other companies like 3AC and Celsius scaled too quickly.

Jason: I think this has been going on for years. SBF wants people to think of Alameda as a neutral company and not a directional fund, but their portfolio is poorly managed.

Why did CZ wait?

Arthur: I don't think CZ knows about FTX mixing user funds either, CZ just feels that Alameda's balance sheet is so fragile.

Binance Labs, typically a long-term investor and rarely sell any investments, has written off their investment in Luna.

Binance makes so much money that they don't bother to exit most investments.

Binance's investment gives Binance some leverage against FTX and SBF, once sold, the leverage is lost.

Destruction of the Solana Ecosystem

Arthur : The community is trying to fork Serum because the private key is held by an employee of FTX. FTX marketed their Solana project to investors in order to get funding as quickly as possible.

I think it will take a long time for the Solana ecosystem to recover from this, the Solana ecosystem should be able to survive but not sure if it can bring user activity and market cap back Back to the top.

Santi: Agree with Arthur, there are good builders on Solana.

Arthur : FTX owns 6-8% of Solana Token . Solana will come under intense selling pressure over the next 12 months due to uncertainty about what the estate will do with it.

The liquidation process

Arthur: I think It will be the most complex liquidation process in history, due to the large number of creditors spread across different jurisdictions. Courts in at least 5-10 major countries need to recognize liquidation before it can be enforced.

Since FTX has not filed for Chapter 11 bankruptcy and has not yet declared bankruptcy, the chances of them reorganizing, repaying creditors, and continuing to operate are slim.

The brand has been tarnished and it is impossible to continue in business.

When FTX Trading is an Antigua entity and FTX Digital Market is headquartered in the Bahamas, he questioned why FTX, including FTX International, filed for bankruptcy Protect. This action bypasses the jurisdiction of Antigua and Bahamas.

Yes Token Impact of the transaction

Arthur: According to US regulations, the current standard practice is to Token Deals are bundled with equity.

pure Token Transactions will be frowned upon unless projects and teams are built in a decentralized manner from the start.

Most transactions in the future will continue to be equity+ Token Warrant transactions.

Public and Private Markets

Arthur: Defiance's new fund will be a Liquidity Venture Fund.

There are many opportunities in the public market that are worth investing your time in.

Liquid funds can manage market risk better than venture funds.

Santi: Crypto venture funds need to be actively managed, otherwise there is a huge opportunity for bad trades. The public offering market is attractive, but the risk-reward ratio is not enough at present.