Compilation of the original text: Deep Tide TechFlow
Compilation of the original text: 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.
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How is DeFiance performing?
Arthur：It was 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 mainly uses Binance and FTX and is relatively unaffected by the FTX incident.
Due to recent market conditions, all funds in DeFiance have been transferred from CEX to wallets.
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How FTX Dominated in Singapore?
Arthur：Local cryptocurrency exchanges only offer spot trading services.
FTX has a silky UI, better liquidity, and provides perpetual futures trading.
Binance will 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 placed on the investor warning list.
Singapore's 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：Are you aware of Alameda's knockout trades, but users continue to use FTX due to tight spreads.
Arthur：first level title
Has DeFiance considered investing in FTX?
Arthur：Only FTT transactions were studied in 2019. The deal was later vetoed because Arthur didn't believe a new exchange could compete with an established exchange.
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Due Diligence in a Bull Market
Arthur：We are influenced by the speed of change in the market.
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 optimism brimming over a plethora of ecosystems and verticals, it's only natural to invest more aggressively.
Spend less time and resources on due diligence.
DeFiance still conducts thorough due diligence, but in some cases not given enough time.
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The spread of FTX
Arthur：This will result in a significant drop in liquidity, potentially causing some projects to lose significant amounts of funds.
According to a recent update, fewer than 5 projects in DeFiance’s portfolio were hit by the FTX crash. 2 of these companies have a considerable amount of funds 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.
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Did 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 with high fully diluted value (FDV) and long vesting periods on Solana. Consider this predatory and bad business practice, but not fraud.
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Has SBF always been this bad?
Arthur：I think SBF may justify its actions on the grounds of the principle of effective altruism. SBF is actively pursuing tokens with low float and high FDV in early 2021 and sees no problem with this.
Adoration and popularity in politics convinced him he could do no wrong. I think it's similar to how other companies like 3 AC and Celsius have scaled too quickly.
Jason：first level title
Why did CZ wait?
Arthur：I don't think CZ knew about FTX mixing user funds either, CZ just sensed how vulnerable Alameda's balance sheet is.
Binance Labs, typically a long-term investor and rarely sell any investments, wrote off their investment in Luna.
Binance makes so much money that they don't bother to exit most of their investments.
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Disruption to 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 to peak.
Santi：Agree with Arthur, there are good builders on Solana.
Arthur ：first level title
liquidation process
Arthur：I think this will be the most complex liquidation process in history because of the large number of creditors spread across different jurisdictions. The courts of at least 5-10 major countries need to recognize the 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.
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Impact on Token Trading
Arthur：Under U.S. regulations, it is currently standard practice to bundle token transactions with equity.
Pure token transactions will be frowned upon unless projects and teams are built in a decentralized manner from the ground up.
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Public and Private Markets
Arthur：DeFiance's new fund will be a liquidity risk fund.
There are many opportunities in the public market that are worth investing your time in.
Liquidity funds can manage market risk better than venture funds.
Santi：first level title
reward
Arthur：The bad guys are given more chances than the good guys.
Rising in the crypto industry is much easier for those willing to take shortcuts.
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