Maker, the organization that has been issuing so-called stablecoin DAI since December 2017, has decided to introduce the ability to remotely freeze some of its stablecoins. It is incentivizing users to convert DAI into a new stablecoin, USDS, which will grant Maker insiders the ability to remotely freeze coins.

For years, the self-described decentralized autonomous organization (DAO) has described DAI as a “decentralized currency that is not influenced by any entity or factor.” Now, its team has replaced that description at the top of its homepage — still cached at search engines like Google — with the much briefer “A better, smarter currency.”

USDS’ freeze function “is generally expected to follow rule of law from jurisdictions where Maker needs a high level of certainty that the legal system will enforce recourse against real-world asset collateral.”

Maker insiders noted that although the intention is to activate the remote freeze function, the exact timeline for activating it on-chain might be months or even years.

For years, Maker distinguished itself from centralized stablecoin issuers like Tether that openly admit their ability to remotely freeze coins. Despite Tether’s USDT stablecoin existing on blockchains like Ethereum or Solana and generally trading for $1 apiece, Tether executives have the discretion to devalue the backing of particular USDT to $0 no matter where they are circulating in the world.

Read more: Moody’s reports 600 stablecoin depegs in 2023

The end of Maker’s “not influenced by any entity” era has arrived. Although it’s keeping certain DAI tokens circulating that don’t have the ability for a remote freeze function, it’s rebranding DAI entirely and emphasizing its new stablecoin, USDS.

During a phase-out period that is presently underway, Maker will enforce a 1:1 convertibility peg between DAI and USDS. Furthermore, it’s incentivizing users to leave DAI for USDS with a suite of financial rewards at Sky.money, its new application for “native token rewards.”

Maker is also introducing a new governance token, SKY, that’s apparently superior to Maker’s prior governance token, MKR. Founder and leader Rune Christensen assures his fans that all of these changes will attract vast sums of capital to Maker that will somehow, in his view, match Tether’s reserves within three years.

A better, smarter currency — with a remote freeze button

Crypto veterans immediately criticized Maker for introducing its remote coin freeze capability, claiming it simply allows executives to comply with international banking regulations — anathema to the crypto ethos.

Indeed, Maker backs its stablecoins with many real-world assets, including instruments benefiting from the yield of US treasuries.

All of these changes follow Christensen’s occasionally bizarre string of promises to ultimately make DAI a non-stablecoin for the benefit of the world. He has promised to tackle climate change, use AI to govern Maker, abandon Ethereum for Solana’s blockchain, introduce “metaDAOs” or “subDAOs,” and abandon seven years of DAI’s $1 peg entirely for a free-floating exchange rate.

As a waypoint along this circuitous path toward whatever future Maker is heading toward, Christensen is putting financial incentives on USDS to encourage DAI holders to convert to USDS — with its remote coin freeze ability — and SKY.

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A self-described Fantom maximalist has alleged that ‘loyal, OG stakers’ of at least 200 million fantom tokens (FTM) experienced a forced liquidation to the benefit of the Fantom Foundation. He somehow claimed to have found ‘the biggest rug pull on Fantom ever’ even though he offered no blockchain evidence.

As if the story wasn’t difficult enough to believe, he further claimed that this ‘rug pull’ was funding Fantom’s assistance of an entirely new blockchain, Sonic.

To start, there are a few things that are certainly true, without the above conjecture. Fantom is indisputably committed to a new blockchain, Sonic. Furthermore, Fantom is pegging FTM with a 1:1 convertibility promise for S, Sonic’s new proprietary token. The well-funded Fantom Foundation is also contributing 200 million FTM and promising a 100 million airdrop of S tokens to hype the launch.

Fantom ‘stable’ coin doubles in price overnight

Returning to the Fantom maxi’s incredible story, they claim it all started with Fantom’s not-so-stable stablecoin FUSD, which has been worth anything but $1 for years. Trading wildly between $0.18 and $0.97, FantomUSD is the center of the controversy.

Because most FTM token holders staked FTM via Fantom’s default staking protocols, some of which supported the price of FUSD, stakers who bet on the price of FUSD when it was closer to $1 have been penalized with liquidations over the years as the price of FUSD has thrashed much lower.

Specifically, on June 5, when Fantom announced a change in support from FUSD to a bridged version of Coinbase’s stablecoin, USDC.E, FUSD was trading below $0.45. In support of the transition to USDC.E (which was actually worth $1), Fantom leaders announced an incentive to allow borrowers against FUSD to repay their borrowings with USDC.E. 

This bullish announcement doubled the price of FUSD north of $0.95 overnight. While great for FUSD token holders, it was catastrophic for FUSD borrowers, who suddenly had to repay double the amount of collateral to repay FUSD.

The most popular type of collateral borrowed against FUSD was, of course, Fantom’s own FTM. This, in the opinion of one Fantom maxi, was a de facto and off-blockchain ‘forced liquidation’ of FTM stakers.

The ‘liquidation,’ which doesn’t have blockchain evidence because it occurred merely as a pricing scheme, underscored ‘the fUSD disaster, which was a major mistake by the FTM team,’ according to the theorist.

Zooming out reveals more liquidation

In the end, whether or not one believes this narrative, whether FTM token holders were liquidated to the benefit of the Fantom Foundation or to the benefit of earlier sellers is merely semantics.

The unfortunate reality for Fantom is that it has lost 98% of its locked assets since its peak — and the price of FTM has only fared mildly better over the years. Ultimately, whether by liquidation or a steady decline in price, most of Fantom’s value transferred from FTM bagholders to sellers in February 2022.

For context, the Fantom blockchain first gained popularity after Avalanche developer Daniele Sestagalli and his partner Andre Cronje endorsed it in late 2021. At the time, the two men were in the process of building their largest, doomed project: Wonderland.

Wonderland, an ultra-high yield DeFi project that boasted a time-to-Lamborghini calculator on its homepage, is down 99.9% from its peak in January 2022. Sestagalli eventually admitted that he concealed the involvement of Omar Dhanani, a.k.a. Michael Patry, a.k.a. 0xSifu in managing Wonderland’s treasury. Dhanani was a co-founder of QuadrigaCX, a failed Canadian crypto exchange.

Read more: Wonderland leader should’ve never trusted Michael Patryn with $1B crypto

Frog Nation: A community of losers

Wonderland was part of a collection of Sestagalli’s and Cronje’s so-called ‘Frog Nation’ projects that have destroyed incredible sums of money for its members.

• Popsicle Finance (ICE) is down 99% from its all-time high.
• Abracadabra (SPELL) is down 98% from its all-time high.
• Betswap (BSGG) is down 99% from its all-time high.
• Wonderland (wMEMO) is down 99.9% from its all-time high.
• Yearn Finance is down 93% from its all-time high. 

Fantom has fared no better. Sestagalli called for ‘Fantom Season’ in January 2022 — a few weeks before Fantom’s peak valuation, of course. After peaking near $8 billion in total value locked (TVL) around March 1, 2022, Fantom’s TVL is down 98% to under $140 million today. FTM has lost two-thirds of its value over the same period.

This week’s allegation, however bombastic, of a supposed off-blockchain liquidation via a USDC.E-for-FUSD repayment pricing scheme only adds insult to Fantom’s community members’ existing injuries.

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When PayPal launched its US dollar stablecoin on August 7, everyone in the crypto industry noticed. Indeed, the 24-year-old, $68 billion fintech behemoth unveiling PYUSD conferred instant credibility onto the stablecoin industry.

However, real-world adoption of PayPal’s stablecoin has been sluggish. PYUSD already faces stiff competition from incumbents. 

Older stablecoins might have shady histories yet they benefit from popular brand names, deep liquidity, Lindy effects, listings on many crypto exchanges, and fiat-denominated trading pairs around the world.

In short, the debut of PYUSD flopped. It’s barely grown to 0.05% the size of Tether, the world’s oldest stablecoin.

PayPal’s issuer Paxos just published its transparency report, disclosing PYUSD reserves of just $45.3 million as of August 31, 2023. That compares to Tether’s $83.1 billion.

PYUSD’s backing includes $43.8 million in US Treasuries plus $1.5 million in cash deposits at insured depository institutions. Unlike Tether’s repeatedly broken promises about its dollar backing, PayPal has followed through with its promise to back PYUSD with dollars, short-term US treasuries, and cash equivalents.

Moreover, PYUSD has never significantly de-pegged from $1. Unlike Tether which has traded as low as $0.001 and as high as $1,000, PYUSD boasts an all-time trading range of $0.979 to $1.01. Both trade at $1 today.

PayPal’s underwhelming PYUSD stablecoin

“PayPal chose a very interesting time to launch a stablecoin,” Ripples head of payments products Pegah Soltani told CoinTelegraph. Indeed, in February 2023, Paxos communicated with the SEC over its dealings with Binance’s stablecoin, BUSD. The New York Department of Financial Services (NYDFS) also ordered Paxos to stop issuing BUSD altogether.

Read more: PayPal stablecoin can be frozen like Tether and Circle

Bank of America analysts have also opined that PYUSD would likely face stiff competition from CBDCs and yield-bearing stablecoins.

Interestingly, Bitcoin News found lines in PYUSD’s code that allow PayPal to freeze or wipe any PYUSD wallet on the same day that PayPal launched its stablecoin. That news quickly spread via X (formerly Twitter) and could have significantly weakened the launch of PYUSD.

The NYDFS added PYUSD to its green list of approved digital assets while removing older assets like Litecoin, Dogecoin, and Ripple.

Paxos is holding the assets used to back PYUSD in a trust designed to protect tokenholders from any bankruptcy of Paxos or PayPal.

In short, PayPal’s PYUSD has failed to gain much traction so far, with only $45.3 million in assets listed in Paxos’ first transparency report. It’s barely five one-hundredths of one percent the size of Tether. PYUSD faces stiff competition, potential regulatory hurdles, and the unpopular nature of centralized assets that can remotely freeze or erase any users’ holdings.

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According to a recently released report by CCData, total stablecoin market cap fell by 0.45% in the past month. This means it’s fallen for 14 consecutive months and currently sits at $130 billion — its lowest level since September 2021.

At the same time, stablecoin market dominance has risen to 11.1% in the overall crypto market, possibly a bearish sign for crypto.

The decline in stablecoin market cap coincides with an exit of liquidity from crypto exchanges. Metrics by numerous sources, including the Block, confirm that May was the lowest month in terms of crypto trading volume on exchanges since the beginning of 2022.

This decline in overall liquidity is paired with a heavy decline in stablecoin trading volume, which according to CCData fell in May by 40.6% to $460 billion. This represents the lowest monthly trading volume by stablecoins on centralized exchanges since December 2022.

Tether’s market cap has grown in tandem with bitcoin’s rise in price this year, growing from an alleged $66.2 billion to $83.5 billion. Tether has recently also announced it made $1.4 billion in profit in Q1 of this year alone and declared that it will be using some of its profits to buy bitcoin.

However, Tether’s finances are also very opaque and the company is currently being investigated by the Department of Justice for bank fraud and money laundering. On the other hand, Circle, the company running the major stablecoin USDC, suffered a setback earlier this year as its major banking partner, Silvergate Bank, crashed causing USDC to temporally lose its peg. However, USDC’s market cap remained stable this year starting at $30.15 billion and settling at $29.05 billion.

Read more: Coinbase pitches “inflation-proof” flatcoins against struggling USDC

Crypto markets did see some respite this year with bitcoin up 67% so far and Ethereum not far behind with 58%. Last year, bitcoin crashed from its 2021 high of around $65,000 while wider crypto markets were characterized by a series of token failures and the FTX crash.

This year, crypto is seeing increasing challenges and regulatory pressure from the US as the SEC increases its enforcement actions on various players including exchanges such as Coinbase and Binance.

Apart from structural and regulatory challenges, crypto may also run the risk of becoming passé as the hype shifts toward artificial intelligence products. Indeed, a16z, a company that has been known for its investments in the crypto industry, is now making most of its investments into AI. Most of the large tech companies, including Microsoft, Alphabet, Meta, and Amazon have announced during their latest earnings calls that developing AI products is at the top of their priority list.

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Rumors are circulating that the Securities and Exchange Commission (SEC) will soon issue an enforcement notice to Circle over its stablecoin USDC.

The move comes as part of the SEC’s current crackdown on stablecoins and follows its enforcement letter to Paxos, demanding the exchange stop minting Binance stablecoin BUSD because it may be a security.

In a statement issued last year, SEC chair Gary Gensler argued that stablecoins could be defined as securities due to the “wide brush” by which Congressional law defined securities. Gensler argued that:

“Stablecoins have features similar to, and potentially competing with, money market funds, other securities, and bank deposits, and raise important policy issues.

“As discussed in the President’s Working Group Report on Stablecoins, it is important to ensure that we have appropriate safety and soundness protections, investor protections, and safeguards against illicit activity.”

According to the SEC’s own definition, money market funds are funds that give an interest rate payment slightly higher than bank accounts.

“Money market funds, sometimes called money funds, are a type of mutual fund developed in the 1970s as an option for investors to purchase a pool of securities that generally provided higher returns than interest-bearing bank accounts,” says the SEC.

“Money market funds invest in high-quality, short-term debt securities and pay dividends that generally reflect short-term interest rates. Many investors use money market funds to manage their cash and other short-term funding needs. They have since grown significantly and currently hold about $3 trillion in assets.”

According to Gensler, Circle can expect an enforcement notice over USDC because the reserves backing USDC are managed in a money market fund called Circle Reserve Fund. This fund is managed by BlackRock and specializes in money, cash, and treasuries that mostly mature in no longer than 397 days.

Read more: Waves DEX users panic as USDT and USDC disappear

Indeed, Circle has admitted that its “operations are directly impacted by changes in interest rates, among other macroeconomic conditions.” Currently, Circle is making most of its profits from treasury yields, yet, inversely, it has also suffered a lot of USDC selling as holders sold their stablecoins to put their cash into treasuries.

The SEC’s potential enforcement notice to Circle will be ironic given that it’s been reported that it was Circle itself that tipped off the authorities on BUSD and kickstarted the SEC’s investigation.

Meanwhile, large movements of USDC have been reported on the chain. This is allegedly due to USDC holders trying to sell their coins on Binance. USDC is currently the second biggest stablecoin with a $40.9 billion market cap.

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Paxos has announced that from February 21, it will no longer issue new Binance USD (BUSD) tokens.

Binance USD is a dollar-pegged stablecoin issued by Paxos that carried the Binance brand name. Protos previously reported on the work of Jonathan Reiter which showed that Binance Peg BUSD, a token pegged to BUSD issued by Binance, hadn’t always been appropriately backed.

The order to stop minting new tokens comes from the New York Department of Financial Services (NYDFS), according to a statement posted by the regulator. The statement also explicitly draws attention to the fact that it had authorized Paxos to issue BUSD on Ethereum, but hadn’t authorized Binance Peg BUSD.

This comes several days after CoinDesk reported that Paxos was under investigation by NYDFS.

Paxos in its press release notes that it doesn’t expect that this will affect its Paxos Dollar (USDP), Pax Gold (PAXG), or other lines of business.

On Sunday the Wall Street Journal (WSJ) reported that Paxos has also received a Wells Notice from the Securities and Exchange Commission (SEC), detailing the SEC’s intention to sue the company alleging that BUSD is an unregistered security.

SEC chair Gary Gensler has previously communicated his belief that stablecoins may be securities, specifically pointing out that even if it doesn’t fail the Howey Test, it can still be a security under legislation passed by Congress.

Read more: Binance’s stablecoin BUSD hasn’t always been 1:1 backed, report

Changpeng Zhao, CEO of Binance, noted that “funds are SAFU” and that they’ll need to move away from BUSD as the primary pair for trading.

Several months ago, Binance announced that it automatically converted user deposits of other stablecoins into BUSD.

It’s not yet clear if these regulatory interventions will extend to other stablecoins. The largest stablecoin, Tether (USDT), is banned from operating in New York following its previous settlement with the New York Attorney General.

The largest stablecoin, Tether, is already banned from operating in New York following its previous settlement with the New York Attorney General. A previous Protos FOIA request to the SEC requesting documents on Tether was returned with an exemption citing documents compiled for law enforcement efforts.

Recent regulatory statements from banking regulators have suggested that banks need to be very cautious when engaging with cryptocurrency.

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Both of Justin Sun’s stablecoins, one of which Protos has previously reported on, are struggling to maintain their promised $1.00 peg.

At the time of writing, USDD is hovering around $0.97, and USDJ is trading at $1.09. Curiously, this means that one of Sun’s stablecoins is melting down while the other is melting up.

How the stablecoins work

USDD relies on a Decentralized Autonomous Organization called the TRON DAO Reserve to stabilize the price of the stablecoin. Since November 8, it’s been unable to reliably peg the price to $1 and has consistently traded at a 2% discount, suggesting the mechanism has ultimately failed.

Meanwhile, USDJ, a stablecoin that started in 2020 to support the JUST Network — a Justin Sun-crafted DeFi project, relies on “collateralized debt positions” and “autonomous feedback mechanisms.” It too has begun to fail.

Thin markets and big swings

The combined daily volume for the two coins is less than $50 million a day — often far less — but both currencies have almost identical market cap structures. Within about a month, USDD reached its market cap plateau of about $700 million.

USDJ remained nearly untouched for about a year before seeing its market cap spike from a mere $15 million to almost $300 million.

These coins only trade on a few exchanges, including Poloniex (owned by Justin Sun), Huobi (owned by a Justin Sun shell company), and Sun dot io (a decentralized exchange named after Justin Sun).

This means that few people besides Sun are incentivized to utilize the dual stablecoins. In addition to this, Huobi, one of the only exchanges they’re trading on, is experiencing insolvency rumors and staff layoffs, meaning they could be experiencing a liquidity crisis, as well.

Read more: Justin Sun, crypto’s most shameless marketer, play-acts the hero

Where’s Justin’s money?

While layoffs at Huobi and suggestions of an FBI investigation into Sun point to money and legal issues for the TRON founder, many questions remain unanswerable. That is at least until the problems with his exchanges and stablecoins play out.

The coins themselves are curious insofar as they’re behaving in differing ways, with no recent capital injections to attempt to control the instability at hand and no incentive for short-sellers to try to short the broken stablecoins. Clearly, where the problems are coming from — or how they could be solved — isn’t Sun’s number one priority.

On Sunday, Sun put out a tweet thread in Chinese apologizing for Huobi’s poor communication during times of strain and welcomed further criticism of the exchange. He also expressed a desire to expand his business endeavors into China.

At the same time, it’s unclear how serious His Excellency is taking his ambassadorship to the WTO for the country of Grenada. His last tweet regarding his position was in October of 2022 and his last video was in June.

All of this is a far cry from Q3 and Q4 of last year when Sun was promising “safe and sustainable” 148% interest rates on stablecoins and saying he’d invest “at least billions” in an attempt to save FTX.

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The central bank of the US has scheduled the launch of its 24/7 payment service called FedNow for July 2023.

FedNow is a system that can irreversibly settle international payments, instantly, at any time of day, 365 days a year.

The central bank will operate a pilot program beginning as early as September. More than 120 organizations, including banks and payment processors, will participate in the pilot.

While many expected the Federal Reserve to deploy its own blockchain, or use a CBDC, FedNow does not use any form of blockchain technology to achieve these results.

The value proposition of many cryptocurrencies — cheap, reliable, and irreversible payment settlements within seconds — is all possible with the FedNow system. 

How FedNow compares to credit cards or remittance providers

Today, nearly all commercial banks settle with finality on the books of the central bank. Only the Fed can ensure that one bank has debited dollars while another has received them with absolute assurance and irreversible finality.

FedWire, the main payment network for settling interbank transactions on the ledger of the central bank, settles trillions of dollars every day.

In a distant second and third place to FedWire are consumer payment networks Visa and Mastercard, which process hundreds of billions of transactions annually. Visa, for instance, handled over 164.7 billion transactions in 2021 and 140.8 billion in 2020.

However, credit card transactions are not irreversibly settled until over one month after the original payment date; this allows time for chargebacks, funds transfers, and other dispute processes.

Revocable credit card payments are faster but still have to pass several hurdles before reaching the recipient’s bank account, which can take days. Sending money through Western Union typically takes 24 hours for domestic transfers and up to five days for international transfers.

Read more: Central banks playing catch-up in bid to influence stablecoin legislation

How FedNow compares to blockchains

Blockchains certainly advertise faster settlement times than consumer payment options like bank checks or automated clearing house (ACH) transfers. However, the irreversibility of blockchain payments usually depends on trusted operators of nodes or mining pools.

Consider Bitcoin, the oldest and most decentralized blockchain network, which can trustlessly settle one block of approximately 2,000 payments every 10 minutes, plus good practice of waiting for five additional block confirmations to assure funds have irreversibly settled. In summary, Bitcoin can process about 12,000 payments per hour.

Other blockchains advertise faster settlements by compromising on decentralization of nodes, block production security, or both, and so are not trustless in the sense of a global consensus of irreversible settlement. 

FedWire, by comparison, allows banks to trustlessly settle 811,472 transfers per day with other banks.

FedNow will further accelerate payment settlement from days to seconds and give banks and businesses faster access to cleared money. FedNow also includes tools for fraud prevention and other value-added services.

Most blockchains do not yet have sufficient decentralization, security, or scale to handle the settlement assurances of a central bank. 

If the Federal Reserve successfully launches its FedNow service in July, it could solve the needs of most consumers, businesses, and banks: cheap, reliable, and irreversible payment settlements within seconds.

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The European Central Bank (ECB) is urging the European Union to push ahead with cross-border stablecoin regulations, drawing particular attention to their increasing influence across digital assets markets.

In a recent bulletin, the ECB acknowledges that while crypto markets are siloed from the broader economy, there exists the potential for systemic risks as stablecoins continue to grow.

The publication also highlights the need for international standards for stablecoins and says it’s seeking cross-border consistency because stablecoins can cross international borders within seconds.

Presciently, the bulletin also warns rule-makers against making premature assumptions. In particular, it warns readers against assuming that sectors or areas of the economy will remain unaffected by stablecoins. As the popularity of stablecoins grows, writes the ECB, they could soon start to affect all industries.

Half of all BTC and ETH trades already involve stablecoins

The ECB highlighted the importance of stablecoins in providing liquidity across digital asset markets. Today, most crypto traders use stablecoins like Tether and USD Coin as stand-ins for fiat.

Indeed, at present, millions of people use stablecoins for preserving purchasing power, inter-exchange transfers, denominating derivatives, or buying other digital assets. In fact, the ECB estimates that half of all bitcoin and Ethereum trades already involve stablecoins.

And if the world’s crypto exchanges report truthful data via their application programming interfaces (APIs), the vast majority of crypto transactions (including derivatives and all altcoins) are denominated in stablecoins.

Read more: History of Tether’s peg: Every time USDT traded above or below one dollar

Not actually backed 1:1 with dollars

The main problem with USD stablecoins’ growing popularity is that none are wholly backed by dollars. Instead, every stablecoin issuer buries its backing promises in lengthy legalese, arcane documents, and website subpages.

Worse, these issuers update their backing promises over time. Famously, Tether modified its language from its original promise to retain one dollar in its bank account for every Tether (USDT). After the New York Attorney General found that promise to be a lie, Tether now promises to back USDT with assorted assets.

Other stablecoins have failed entirely, including terraUST, Basis, Himalaya Dollar, Titan, and dozens of other stablecoins. Even major stablecoins de-peg with frequency. Tether, for example, has de-pegged dozens of times — and once traded below a penny.

Stablecoin regulations could prevent contagion

Some crypto insiders are concerned that unregulated stablecoins could ultimately collapse. In its bulletin, the ECB warns that a meltdown in a top five stablecoin could spill over to impact the mainstream financial sector. The bank cited a relatively new consortium of FDIC-insured US banks who have expressed interest in issuing a stablecoin called USDF. The consortium aims to use blockchain and the USDF token to reduce the costs of interbank transactions.

The Financial Stability Board expressed similar concerns in a statement issued on July 11, 2022, calling for the regulation of stablecoins as part of a larger scheme for international regulation of digital assets.

Not only that, the ECB also said that poor frameworks for stablecoin regulation have already caused business uncertainty among mainstream entities like payment processors. Most payment service providers in Europe have limited stablecoin-related services.

The bank also cited variations in transaction speeds between blockchains. Stablecoin issuers frequently use the Ethereum blockchain as an initial base for their tokens, however, some stablecoins have moved away from it. Other blockchains can be faster or cheaper, but they achieve those feats with security trade-offs.

The ECB’s bulletin concluded with support for an existing European Union proposal to regulate digital asset markets. It called the regulation of stablecoins an urgent matter for financial stability. The best way to mitigate contagion risk, it says, is unified enforcement of international stablecoin regulations.

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Hedge funds guided by automated trading algorithms are winning where humans are losing as the crypto market crash results in a trillion-dollar tumble, reports Financial Times.

Computers execute automated trades for quantitative hedge funds (or “quant” funds), relying on math and statistics to make investment decisions, largely replacing human analysis. For former Lehman Brothers and Morgan Stanley trader Jay Janer, this type of trading has proved pretty profitable. 

Janer now runs the Cayman Islands-based KPTL Arbitrage Management whose Appi fund is currently up 20% for the year, amid the volitile market conditions. For example, while most LUNA holders lost out during Terra’s recent crisis, Janer’s fund cashed in on the collapse. 

In May, the price of Terraform Lab’s native token LUNA and stablecoin TerraUST (UST) all but vanished after the stablecoin lost its dollar peg, helping to spark the current crypto market crash. The computer-controlled fund exploited Terra’s downward spiral for profit. It had also placed short positions on Bitcoin and Ethereum before targeting smaller tokens.

“We’ve made good money from Luna…The model followed what was happening in the market. It started crashing and the model got in,” Janer told FT.

“It’s wonderful to have a market that moves so much… I don’t know of any other market that moves so much.”

However, movements in cryptocurrency pricing has been predominantly downwards. What was a more than $3 trillion market now strains to exceed the $900 billion level.

Elsewhere, Leda Braga’s Systematica Investments is also profiting from Bitcoin’s sustained losses. Its nearly $7 billion Alternative Markets fund is enjoying profits of close to 16% for the year. London hedge fund Florin Court is also up nearly 15%, also making use of quantitative strategies which employ computer models to make investment decisions.

Automated hedge funds up while DeFi falls victim to crypto market crash 

The ongoing turmoil appears to be having an outsized effect on the DeFi lending space. What was once DeFi summer is now becoming a season of insolvency.

This week, DeFi lenders Voyager and BlockFi received emergency bailouts from leading crypto exchange FTX, to the tune of $500 million and $250 million respectively. Although the move, heralded by FTX chief exec Sam Bankman-Fried, could be more self-preservation than selflessness as the exchange tries to limit the damage to its own business. 

Read more: Better call Sam: FTX bails out BlockFi and Voyager despite years of losses

Beyond DeFi an unwelcome margin call helped to push positions held by Singapore-based venture capital fund Three Arrows Capital into liquidation. The fund reportedly used shares in Grayscale Bitcoin Trust as collateral for loans and liquidations across several exchanges resulted in at least $6 million of outstanding debt.

Ultimately, it is often retail investors who end up being most impacted by crypto market crashes. Many were convinced to invest in projects like the Terra ecosystem by industry influencers like Raoul Pal, who famously suggested that LUNA was a solid investment. In a show of current investor sentiment, massive crypto exchange Binance is now embroiled in legal proceedings on behalf of disgruntled customers who claim the exchange explicitly marketed TerraUST as “safe.”

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