In this episode of Analyse Asia, Kyle Davies joins the host of the show Bernard Leong to discuss the aftermath of 3AC collapse and more!
Read our notes below to learn more.
Kyle Davies and His Background
Previously worked at Credit Suisse with Zhu on the equity derivatives trading desk, where he traded structured products and convertible bonds.
Zhu moved to flow Traders, an ETF, and high-frequency trading shop.
Noticed that the crypto market had similarities to the traditional market, such as futures, forwards, and spot trading.
Supercycle
"Supercycle" in the crypto market is the idea that mainstream adoption is increasing, leading to some volatility but also opportunities for buying at lower prices.
Invested in a lot of NFT, DeFi projects as a part of this thesis.
3AC
3AC had an OTC group focused on client-facing service.
Had arbitrage team looking at the spreads.
Had a venture-focused team and also a team focused on NFTs.
$GBTC
Did very well in the $GBTC trade and $ETHE trade (Grayscale financial products) in 2019 to 2021.
Did not want to talk about $GBTC publicly during 2021 as 3AC held 5% of the total $GBTC and didn’t want anyone to front-run 3AC.
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Luna trade
Invested $200m in the $1b round of Luna Foundation Guard round.
LFG's execution on diversifying was not good as the $1b in $UST they sold to Genesis was sold/lent immediately who attacked Luna.
There were a few serious offers from Binance and others to save the $UST peg and if that had happened, it would have been good for the crypto markets.
Will never know if Luna would have survived without the attack.
3AC did not have exposure to $UST but had exposure to $LUNA from the LFG round and it would have been game theory optimal for the industry to save $UST peg.
Filling for Chapter 15 Bankruptcy
Was trying to inject new capital and that would have been better for everyone.
Chapter 15 bankruptcy is a full liquidation process.
No longer in control of the company, the liquidator is. Could have done things differently but the media forced us to file for liquidation.
Other firms are in worse shape without filing for bankruptcy, trying to start a new venture and dealing with 3AC.
Lessons from 3AC
Two early partners of 3AC retired in mid-2021 but should have fought to keep them.
After liquidation, should have had blinders to the media and focused on creditors only and found a different solution.
Allegations about 3AC
It is a false accusation that we moved $1m when 3AC’s FTX account was liquidated.
3AC did not pledge collateral multiple times, creditors are FTX and Castle Island Ventures.
The last person to put money in 3AC was Zhu because we believed in our thesis till the end.
Debate with Nic Carter on Twitter
What Nic Carter is doing is hypocrisy while BlockFi has filed for bankruptcy losing $500m in $GBTC and risking lending.
Nic and Matt are still promoting BlockFi while being critical of 3AC, a hedge fund.
On SBF and FTX
$SRM is the most predatory token in crypto.
Realized FTX was pumping $SRM to use it as collateral and get USD.
$SRM was created to raise cash and followed the same trick with $OXY, $MAPS, and more coins.
Started trading on FTX after FTX had reputable investors thinking they would do due diligence.
Was very vocal about FTX in the early days.
SBF has done so many frauds including insider trading.
Do Kwon
Difficult to expand as Do Kwon designed a technology that failed.
Answers for if he intended for Luna to fail and if he profited from it would prove the malintent.
Should Crypto Be Regulated
U.S regulation pushed FTX offshore and a lack of enforcement allowed BlockFi to keep operating after getting a $100m fine from the SEC.
Question is what regulation is going to be in what jurisdiction and it’s hard to answer.
Crypto is a capitalist libertarian future and is allowed to learn from mistakes from the previous cycle.
Still Bullish on Crypto?
It’s going to take months to see the full implications of FTX collapse.
Still bullish in the space after the contagion plays out.
Genesis
There are numerous firms in trouble like Genesis.
Crypto is supposed to be decentralized and firms like Genesis have 80% of the market share in their area.
Words to Creditors and Plans for the Future
Lost lots of money and will do what we can.
Starting a new venture with soon-to-be creditors.
The 3AC liquidation process will run.
Lessons from the Darkest Moments
Nothing lasts, no alcohol & no medication and meditation.
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Summed up well. Thanks team!