What crisis? High-stakes crypto loans seem here to stay


LONDON/WASHINGTON, Sept 21 (Reuters) – On May 11, Scott Odell, an analyst at British crypto lender Blockchain.com, sent an instant message to Edward Zhao of Three Arrows Capital demanding that the Singapore hedge fund repay at least a part of a $270 million loan. .

Three Arrows had just taken a hit from the collapse of the Terra cryptocurrency, casting doubts on its ability to repay. This was a concern for Blockchain.com because it had not taken collateral to secure the loan, according to court documents.

“It’s urgent, so let’s sort out if you’re available,” Odell said of the refund.

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Zhao seemed at a loss for words.

“Yo,” he replied.



Three Arrows filed for bankruptcy in July and Blockchain.com told Reuters it has yet to recover a penny of its loan. The text exchange is among the sworn documents filed by the liquidators as part of the hedge fund’s liquidation proceedings. Read more

Three Arrows did not respond to requests for comment. Odell declined to comment, while Reuters could not reach Zhao.

The loan was part of an opaque web of unsecured lending between crypto companies that left the industry exposed when cryptocurrency prices crashed 50% earlier this year, according to a Reuters review of the court. bankruptcies and regulatory filings, and interviews with approximately 20 executives and experts.

Institutional crypto lending is the lending of cryptocurrencies as well as cash in exchange for a return. By waiving the requirement for the borrower to post collateral – such as stocks, bonds, or more commonly other crypto tokens – lenders can charge higher rates and increase profits, while borrowers can generate cash quickly.

Blockchain.com has since largely ceased unsecured lending, which made up 10% of its revenue, chief commercial officer Lane Kasselman told Reuters. “We are not willing to take on the same level of risk,” he said, although he added that the company would still offer “extremely limited” unsecured loans to best customers under certain conditions.

Unsecured loans have become mainstream in the crypto industry, according to review of filings and interviews. Despite the recent jolt, many industry insiders have said the practice is likely to continue and may even grow.

Alex Birry, director of analytics for financial institutions at S&P Global Ratings, said the crypto industry is actually seeing a general trend towards unsecured lending. The fact that crypto is a “concentrated ecosystem” has increased the risk of contagion across the sector, he added.

“So if you only lend to people operating in that ecosystem, and especially if the number of those counterparties is relatively small, yes, you will see events like the one we just saw,” he said. about the summer meltdown of lenders.


Crypto lenders, the de facto banks of the crypto world, have exploded during the pandemic, enticing retail customers with double-digit rates in exchange for their cryptocurrency deposits. On the other hand, institutional investors such as hedge funds looking to make leveraged bets paid higher rates to borrow the funds from lenders, who profited from the difference. Read more

Crypto lenders aren’t required to hold capital or liquidity reserves like traditional lenders and some have found themselves exposed when a shortage of collateral has forced them – and their clients – to bear significant losses. Read more

Voyager Digital, which became one of the summer’s biggest casualties when it filed for bankruptcy in July, offers a window into the rapid growth of unsecured crypto lending.

The New Jersey-based lender’s crypto loan portfolio grew from $380 million in March 2021 to around $2 billion in March 2022, and only 11% of that $2 billion required collateral. dollars, according to the company’s regulatory filings.

The lender collapsed after Three Arrows defaulted on a crypto loan worth over $650 million at the time. Although neither party said whether this loan was unsecured, Voyager did not report having liquidated collateral in the event of default, while Three Arrows reported that its collateral status with Voyager was ” unknown,” according to the companies’ bankruptcy filings. Read more

Voyager declined to comment for this article.

Rival lender Celsius Network, which also filed for bankruptcy in July, also offered unsecured loans, according to court documents, although Reuters could not determine the extent.

Since most loans are private, the amount of unsecured loans in the industry is unknown, even those involved in the business give vastly different estimates.

Crypto research firm Arkham Intelligence, for example, put the figure at around $10 billion, while crypto lender TrueFi said at least $25 billion.

Antoni Trenchev, co-founder of crypto lender Nexo, said his company has turned down requests for funds and merchants asking for unsecured loans. He estimated that unsecured lending in the industry was “probably in the hundreds of billions of dollars”.


While Blockchain.com has largely retreated from unsecured lending, many crypto lenders remain confident about the practice.

Most of the 11 lenders polled by Reuters said they would still provide unsecured loans, although they did not specify the amount of their loan portfolio.

Joe Hickey, global head of trading at BlockFi, a major crypto lender, said he would continue his practice of only offering unsecured loans to the best clients for whom he had seen audited financials.

A third of BlockFi’s $1.8 billion loans were unsecured as of June 30, according to the company, which was bailed out by crypto exchange FTX in July, when it cited losses on a loan and an increase in customer withdrawals. Read more

“I think our risk management process was one of the things that saved us from having bigger credit events,” Hickey said.

Additionally, a growing number of smaller peer-to-peer lending platforms are looking to fill the void left by the exit of centralized players such as Voyager and Celsius.

Sid Powell, co-founder and CEO of insecure crypto lending platform Maple, said institutional crypto lenders were more cautious after Three Arrows’ insolvency, but conditions have since normalized and lenders are comfortable with lending without collateral again.

Executives from two other peer-to-peer lenders, TrueFi and Atledis, said they saw an increase in demand as market makers continued to seek unsecured loans.

Brent Xu, CEO of Umee, another peer-to-peer platform, said the crypto industry will learn from its mistakes and lenders will fare better by lending to a more diverse range. of crypto companies.

For example, that would include companies looking to make acquisitions or fund expansion, he added, rather than focusing on those that trade leveraged crypto prices.

“I am very optimistic about the future of borrowing and unsecured lending,” Xu said.


Granted, many crypto loans are secure. Even then, however, the collateral often comes in the form of volatile tokens that can quickly lose value.

BlockFi over-collateralized a loan to Three Arrows but still lost $80 million, the lender’s CEO Zac Prince said in a tweet in July. BlockFi said its loans to the hedge fund were collateralized by a basket of crypto tokens and shares in a bitcoin trust.

“A more traditional lender would likely want more than full collateral coverage on a crypto-backed loan because in any given day the value of the collateral could fluctuate by 20% or more,” Daniel Besikof said. , a partner at Loeb & Loeb who works in bankruptcy.

“Lending $1 million against $1 million worth of bitcoins is riskier than lending against more traditional, stable collateral.”

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Reporting by Elizabeth Howcroft in London and Hannah Lang in Washington; Editing by Michelle Price and Pravin Char

Our standards: The Thomson Reuters Trust Principles.

Elizabeth Howcroft

Thomson Reuters

Reports on the intersection of finance and technology, including cryptocurrencies, NFTs, virtual worlds and money that generates “Web3”.


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