Under the liquidity crisis in the cryptocurrency industry, FTX aims to become the "firefighter" at a critical moment

Author: Hu Tao

The impact of the Three Arrows Capital crisis is still further unfolding.

On the evening of June 22, cryptocurrency broker Voyager Digital announced its debt situation related to Three Arrows Capital, stating that its exposure to Three Arrows Capital's unpaid loans includes 15,250 BTC and 350 million USDC, currently valued at approximately 660 million dollars. After issuing a repayment request, the counterpart has not repaid any funds, and failure to repay by June 27 will constitute a default event.

660 million dollars, this enormous amount further exposes the massive financial hole that Three Arrows Capital is facing, while Three Arrows Capital has been silent for nearly a week. During this time, various parties in the industry have exposed phenomena such as the absorption of financing amounts from project parties for wealth management, liquidation of contract positions, and misappropriation of third-party assets, making its prospects extremely concerning.

In addition to the previous Luna crisis, the market sell-off of stETH, and a series of other events, the cryptocurrency industry is facing one of the most severe liquidity crises in history, with many referring to it as the industry's "Lehman moment." At least 20 projects or companies have announced the suspension of user withdrawals or restrictions on daily withdrawal amounts, including well-known companies like Celsius and Babel Finance.

In past global financial crises, many governments often take various rescue measures for certain systemically important companies to avoid the broader spread of risks. However, in the still unregulated and overly leveraged cryptocurrency industry, they can only rely on their own strength.

As one of the players with the most abundant cash flow in the cryptocurrency industry today, FTX seems to intend to play the role of "firefighter" in this market crisis, continuously signing credit agreements with Voyager Digital and BlockFi to address the "urgent need." On June 21, BlockFi signed a term sheet with FTX to obtain a $250 million revolving credit facility; on June 18, Voyager Digital signed credit terms with FTX affiliate Alameda Research for $200 million and 15,000 bitcoins, with a total value of nearly $500 million.

Through these measures, companies like Voyager Digital can somewhat alleviate the liquidity crisis caused by Three Arrows Capital, preventing situations where user assets cannot be redeemed or even bankruptcy, thus controlling the further spread of the crisis.

This is also the message that SBF has conveyed multiple times in interviews. "I do feel we have a responsibility to seriously consider intervening, even if we ourselves are at a loss, to stop the contagion," SBF said in an interview with NPR. "Even if we are not the ones causing it, or not involved. I think this is healthy for the ecosystem, and I want to do things that can help it grow and thrive."

When tweeting about the collaboration with BlockFi, SBF also stated: "We are seriously fulfilling our duty to protect the digital asset ecosystem and its customers."

In fact, this is not the first time FTX has "saved the market." Earlier, in August of last year, after the Japanese cryptocurrency exchange Liquid Global was hacked for over $80 million, FTX also signed a debt financing agreement worth $120 million with the exchange to provide critical liquidity.

In a recent interview with Bloomberg, the founder of SkyBridge Capital commented on SBF's aforementioned actions, saying, "He is rescuing the cryptocurrency market like J.P. Morgan did after the 1907 crisis."

During the financial crisis of 1907, J.P. Morgan pledged his own capital and led a coalition of wealthy financiers to support failing banks, stock exchanges, and trust companies. Historians believe that Morgan's actions prevented a more severe recession when the federal government had almost no capacity to manage the economic crisis.

Another leading exchange, Binance, also plans to play a similar role. In a blog post released today, Binance stated, "It is well known that current market conditions are tough. As one of the largest industry participants with healthy cash reserves, we have a responsibility to protect users. We also have a responsibility to help industry participants survive and hopefully thrive, even if it does not directly benefit us or our investment returns are negative."

As one of the biggest beneficiaries of this round of the cryptocurrency market bull run, Binance and FTX's efforts to protect the stability of the cryptocurrency ecosystem also serve to protect the sustainability of their own interests, as the cryptocurrency industry remains very fragile.

However, compared to the scope of the impact on the cryptocurrency market, the subjects that FTX is currently "rescuing" are still limited, and many hidden landmines may still be brewing. The next 1 to 2 months will be a critical period in determining the extent of the damage from this market crisis.