Regulators should ensure that crypto lenders demand collateral to prevent serious contagion when one fund or company collapses, said Sam Bankman-Fried, chief executive at crypto exchange FTX.
The crypto billionaire highlighted the volatility in crypto markets after digital asset hedge fund Three Arrows was ordered to be liquidated by a court in the British Virgin Islands. Some of its lenders demanded collateral while others did not which made “a very big difference,” Bankman-Fried said in the Bloomberg Crypto Summit Tuesday.
After Three Arrows in June defaulted on loans from Voyager of about $704 million, including 15,250 bitcoin
and $350 million USDC
the crypto broker filed for bankruptcy earlier this month. It is unclear whether such loans were secured by any collateral.
Asking for collateral is “an incredibly important decision. But it’s one which like, there is no punishment at all for what you did, until everything blew apart,” Bankman-Fried said.
“If you’re thinking about like, what could regulation have done here? I think one thing that regulators would really want to do is to make sure there is collateral. It is a really important oversight on transparency and to enforce good risk management,” Bankman-Fried said. “From an outward facing perspective, no one has any idea whether or not you actually got that collateral.”
Bankman-Fried acted as a savior for some of the embattled crypto companies. FTX US signed a deal with BlockFi to provide the latter a $400 million revolving credit facility. The deal also includes an option for FTX to buy BlockFi at a maximum price of $240 million, based on performance triggers.
Despite Voyager’s recent bankruptcy, it in June secured a $200 million cash and USDC revolver and a 15,000 BTC revolver from Bankman Fried’s Alameda Ventures.