The Singapore-based crypto venture firm Three Arrows Capital (3AC) failed to meet its financial obligations on June 15 and this caused severe impairments among centralized lending and staking providers like Celsius and Babel Finance.
On June 22, Voyager Digital, a New York-based digital assets lending and yield company listed on the Toronto Stock exchange, saw its shares drop nearly 60% after revealing a $655 million exposure to Three Arrows Capital.
Voyager offers crypto trading and staking and had about $5.8 billion of assets on its platform in March, according to Bloomberg. Voyager’s website mentions that the firm offers a Mastercard debit card with cashback and allegedly pays up to 12% annualized rewards on crypto deposits with no lockups.
More recently, on June 23, Voyager Digital lowered its daily withdrawal limit to $10,000, as reported by Reuters.
The contagion risk spread to derivatives contracts
It remains unknown how Voyager shouldered so much liability to a single counterparty, but the firm is willing to pursue legal action to recover its funds from 3AC. To remain solvent, Voyager borrowed 15,000 Bitcoin (BTC) from Alameda Research, the crypto trading firm spearheaded by Sam Bankman-Fried.
Voyager has also secured a $200 million cash loan and another 350 million USDC Coin (USDC) revolver credit to safeguard customer redemption requests. Compass Point Research & Trading LLC analysts noted that the event “raises survivability questions” for Voyager, hence crypto investors question whether further market participants could face a similar outcome.
– Unsecured derivatives and options trading on Deribit
– $650 million of unsecured debt with Voyager
– Offering protocols/portfolio companies 8-10% APY on their cash balancesWhat else?
— Dylan LeClair (@DylanLeClair_) June 22, 2022
Even though there is no way to know how centralized crypto lending and yield firms operate, it is important to understand that a single derivatives contract counterparty cannot create contagion risk.
A crypto derivatives exchange could be insolvent, and users would only notice it when trying to withdraw. That risk is not exclusive to cryptocurrency markets, but is exponentially increased by the lack of regulation and weak reporting practices.
How do crypto futures contracts work?
The typical futures contract offered by Chicago Mercantile Exchange (CME) and most crypto derivatives exchanges, including FTX, OKX and Deribit, allow a trader to leverage its position by depositing…
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