The crypto firm Three Arrows Capital (3AC) based in Singapore failed to meet its financial obligations on June 15, causing disruptions among centralized lending providers like Babel Finance and staking providers such as Celsius.
Voyager Digital, a New York-based digital assets lending and yield company listed on the Toronto Stock Exchange, experienced a sharp drop of nearly 60% in its shares on June 22 after disclosing a $655 million exposure to Three Arrows Capital.
In March, Voyager had around $5.8 billion in assets on its platform, offering crypto trading and staking services. The company provides a Mastercard debit card with cashback and claims to offer up to 12% annualized rewards on crypto deposits without lockups.
Recently, on June 23, Voyager Digital reduced its daily withdrawal limit to $10,000, as per reports by Reuters.
Impact on Derivatives Contracts
The extent of liability to a single counterparty by Voyager remains unclear, but the company intends to take legal action to recover its funds from 3AC. To maintain stability, Voyager borrowed 15,000 Bitcoin (BTC) from Alameda Research and secured a $200 million cash loan and a 350 million USDC Coin (USDC) revolver credit to address customer redemption requests.
Analysts from Compass Point Research & Trading LLC raised concerns about Voyager’s survival post this event, prompting cryptoinvestors to speculate if other market players could face similar risks in the future.
Understanding Crypto Futures Contracts
Futures contracts on platforms like the Chicago Mercantile Exchange (CME) and various crypto exchanges allow traders to magnify their positions by depositing margin. However, these contracts do not involve actual cryptocurrencies like Bitcoin or Ethereum but derivatives closely tied to their prices.
Unlike traditional assets, these contracts cannot be withdrawn or transferred between exchanges. There’s a risk of these contracts deviating from cryptocurrency prices on regular exchanges like Coinbase or Bitstamp, amplifying market uncertainties.
Managing Derivatives Risk on Exchanges
Exchanges mitigate margin inadequacy risks through measures like “clawbacks” or insurance funds from exchanges like BitMEX. Despite these mechanisms, exchanges can still face insolvency risks, potentially impacting all parties involved in the trades. This risk extends to spot exchanges where reported cryptocurrency holdings might differ from actual holdings.
While concerns exist about the solvency of crypto exchanges, there’s limited information accessible due to inadequate transparency within the centralized crypto industry.
It is imperative for traders and businesses to be vigilant about such risks associated with futures contracts and ensure prudent risk management practices to navigate the evolving crypto landscape.
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