A real hangover.
For the past few days, the crypto ecosystem has been realising the scale of the FTX scandal and above all its consequences. For the American platform worked with hundreds of other companies in the sector, and its bankruptcy will drag others down with it.
Several American players are already in the red, and even some industry behemoths like Genesis have been singled out (more on that below). Such is the doubt that even Coinbase boss Brian Armstrong has had to deny any problems.
On Twitter, the American explained that his Wall Street-listed company held around 2 million bitcoins on behalf of its customers. This intervention was at least enough to calm things down in the short term 😅.
Meanwhile, the wave of the FTX tsunami continues its mad rush and has hit Europe.
One of the first to communicate on the subject is French company Coinhouse. The broker that bills itself as "Europe's leading crypto-bank" (540,000 customers) last week announced losses, notably on its "crypto passbooks" that used FTX products.
FTX was one of Coinhouse's counterparties on its passbooks (up to 5% on the bitcoin and USDT passbooks, 20% on the ether passbook). The French company covered the losses.
But as we revealed , the French broker was also subsequently forced to halt withdrawals, until further notice, from its "crypto passbooks" due to the "temporary suspension" of activities by another of its counterparties, the US company Genesis (the latter is seeking between $500 million and $1 billion in liquidity to continue operating).
Genesis accounted for between 38% and 40% of Coinhouse's various passbooks. As its boss Nicolas Louvet confirmed to us, "no commercial gesture is planned" if Genesis goes bankrupt...
Coinhouse, which raised several tens of millions of euros in the spring from several large investors such as private bank Oddo BHF, claims that "fewer than 10,000 people" have subscribed to its "crypto passbooks".
For how much? The company did not wish to disclose, but it could be "several million euros", blows a source close to the company.
To justify himself, Nicolas Louvet explains that there is "a risk" in every interest-bearing investment. "Our conditions of use were clear," he insists.
Was it wise, however, to choose Genesis as a counterparty? Especially at 40%? According to one industry expert, "Genesis was a reference platform used by most crypto institutions. No one could have envisaged such a situation".
For its part, Coinhouse explains that it carries out all the necessary investigations into its partners. The company had, for example, ruled out the American Celsius well before the collapse of Terra (Luna). And BlockFi, which blocked customer withdrawals on the day of FTX's collapse, "never passed our teams' assessment", says Nicolas Louvet.
Coinhouse alone to announce losses
What about the other European players?
Coinhouse Trading has also been impacted, but it is an investment company, not a broker (discussed here) .
In other words, all of Coinhouse's competitors have said they are "not affected" by the FTX affair. Whether it be Bitpanda (Austria), Feel Mining (France), Just Mining (France), Nexo (UK), Swissborg (Switzerland) or Young Platform (Italy), none have communicated on any losses or possible problems.
Should we be surprised or worried?
"Unless they are forced to do so, no player has any interest in sharing their exhibitions. On the contrary, they're more likely to want to send a reassuring message to avoid fuelling the prevailing panic," raises Charlie Méraud, boss of French market maker Woorton. "You only have to look at the example of BlockFi and Genesis who, within the space of 48 hours, announced that they would not be impacted before freezing withdrawals", he adds.
An hour before its operations were halted, FTX also explained that everything was fine...
Corpses in the closet
Coinhouse's transparency is therefore courageous, as the company has not been spared on social networks because of its losses.
Just Mining went through the same thing in the spring after its massive losses in the collapse of Terra (Luna) and the stablecoin UST.
But in both cases, the companies were forced to communicate because they were unable to cover all the losses.
Are the others able to?
"A number of European companies have managed to overcome the bankruptcy of Terra (Luna) and Celsius, but will they be able to absorb FTX's as well?" asks a lawyer specialising in the sector. "It is quite unlikely that Coinhouse will be the only company affected," he points out.
Among the start-ups we interviewed, Austrian Bitpanda (4 million customers) assures us that all its users' cryptos are kept in a cold environment (cold storage ) and are regularly checked by an external auditor.
"Our customers are not treated as unsecured creditors and do not risk losing their assets as they can enforce their right to separation under Austrian law," says the company, which also acts as a white label for many apps that offer crypto investing, such as French apps Lydia and N26.
Bitpanda's good fortune is surely that it has never offered exposure to lending yield products (the company offers staking, but this method does not involve lending funds to financial companies).
The limits of "proof of reserves"
In contrast, Nexo (5 million customers) offers this type of product. It's even its trademark. Still, the London-based company wants to be reassuring. "We are one of the only companies in the sector to display the status of our reserves", the British company explained to us.
Nexo's report (which is issued every day) indicates that the assets deposited by its customers are $2.7 billion and are 100% collateralised.
The problem is that Nexo's audit is carried out by the American firm Armanino, which is none other than the firm that handled the audit of... FTX US (until March 2022). "I have nothing to say about Nexo's audit, but there are major doubts about Armanino's methods when you see what happened with FTX," says a sector insider. Armanino is also in charge of issuing the proof of reserve for the historic Kraken exchange platform.
"It's important to remember that a proof of reserve is not a silver bullet," insists Woorton's Charlie Méraud. "To assess a company's financial situation, you also need to know its debts," he hammers.
According to our information, several investment companies have received commercial proposals from Nexo to use its services. "This company is obviously looking for cash", blows the boss of one canvassed company. Nexo, for its part, claims to be "a profitable company based on prudent risk management". The start-up is also keen to reassure its customers: "Our ability to have strong liquidity and maintain financial stability is the result of sound decisions that have enabled the company to operate with confidence despite the prolonged market downturn."
Another area of concern about Nexo is that the platform is still offering yields of up to 12% on stablecoins, which seems (totally) uncorrelated with market conditions.
For its part, Italian start-up Young Platform tells us it has suspended its yield products because "the global context on this type of service does not allow us to guarantee 5% to 7%".
According to our information, its partnership with its provider Tesseract has been suspended, in particular because of exposure to FTX and its sister company Alameda. "Prevention is better than cure", tries the Turin-based company.
DeFi, the miracle solution?
While it is wiser to discontinue yield products from centralised sources (such as Genesis), other players continue to offer them based on decentralised finance (DeFi) protocols such as Aave or Compound. At any rate, this is what would have enabled Swissborg to slip through the net.
"Even though rates are not very high at the moment, DeFi allows us to offer attractive returns," says Cyrus Fazel, head of the Swissborg application (650,000 customers). "We are obviously very cautious, but unlike centralised solutions, the most proven protocols such as Aave have never been caught out", he continues.
"We don't use centralised platforms, everything is placed in decentralised finance protocols", also asserts Chloé Desenfans, boss of Feel Mining.
"The problem for many companies currently in difficulty is that they are primarily financial whereas the focus should be on technology", says Cyrus Fazel. "FTX was a financial company, Celsius too. At Swissborg, half our employees are engineers and we use DeFi exclusively," he continues.
A plea that doesn't convince everyone.
"It's all very well to see Swissborg extolling the virtues of DeFi, but they still need to use its basic security principles and not see them fall once again into ponzis such as UST because the returns are attractive," Julien Bouteloup, founder of StakeDAO and a member of the DeFi Curve protocol development team, gently tackles.
Several companies such as Swissborg and Just Mining were in fact offering returns from the UST stablecoin until it collapsed in the spring with significant losses for their customers...
