Crypto bailouts have begun. Is this the only way?


FTX CEO Sam Bankman-Fried has rushed to the rescue of struggling crypto firms amid the current crash that he’s compared to John Pierpont Morgan (the man himself, not the bank) in 1907. Now his rivals are taking note, and they want to join the rescue race.

Last month, FTX extended a $250 million line of credit to struggling crypto lender BlockFi. A day later, Alameda Research, another SBF company, granted Voyager Digital a $500 million line of credit. Two weeks later, FTX agreed to acquire BlockFi outright. SBF reportedly backed out of giving Celsius a similar bailout. And he said Reuters last week that FTX still has “a few billion” to help other companies with one foot in the grave.

It’s not about magnanimity, and it’s hard to see that as a benefit to the crypto industry.

In Voyager’s case, it turns out that Alameda already owed Voyager $377 million. It is not common to see a borrower bail out his lender. Binance CEO CZ criticized Voyager’s bailout, telling us in an interview for the upcoming gm podcast, “I would never do that type of deal. I would never say, ‘I’m going to invest in your business and then you lend me money.’ I just wouldn’t invest in this business, I’ll keep my money.”

Fair enough. But CZ obviously wants to participate in the bailout windfall. He told us, “We’re looking at a lot of deals ‘in the midst of the crypto liquidity crisis,’ and some of them are actually good deals. So I think you’ll see that we’re going to invest, bail out, save multiple projects.”

Never a miss a chance for the press, says Tron CEO Justin Sun The block that he is willing to shell out $5 billion to help struggling crypto firms.

Cool. But these bailouts do not strike me as a healthy path out of the current crypto market depression. (Note: Is it fair and accurate to refer to these financial lifelines as “bailouts”? I think so; some disagree.)

Celsius, BlockFi, Voyager, and other crypto lenders that promised high returns for user deposits always sounded too good to be true, and they were. They had delusional business models that assumed an “up only” market environment. Are they worth saving?

To be fair, as CZ pointed out, it’s better for the users of the companies that hold their funds to be acquired rather than closed. “That means users don’t lose money or hopefully lose less money,” he told us. He was also reluctant to shame high-yield lenders. His take: When the crypto market is booming like in 2020 and 2021, “If your project only gives 2% return, and this other project gives 10% return, guess what, you’re going to lose users. There’s a herd of behavior: if someone else is doing this, I have to do this to stay competitive.”

But CZ also posted a blog post on June 23, an obvious sub-tweet from SBF, in which he stated, “Don’t perpetuate bad businesses. Let them fail.

I like this thought. I tend to think that the current Crypto Winter will weed out the weak and stealthy players and the strong businesses and projects will survive; the wheat will be separated from the tares.

But CZ will completely contradict himself if he steps in now and starts making his own saves.

This is the editor nodea recurring chronicle of the weekend of Editor Daniel Roberts. Read the previous edition: A tale of two NFT nights: Doodles vs. Goblintown.

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