November 21, 2022

Big Crashes – Little Sleep

Flovtec handling the effects of FTX's downfall

The current market situation has resulted in very little sleep for the flovtec team since early November. Due to irregular moves by some of the largest institutional players prior to the FTX / Alameda Research falldown, we have been monitoring on and off chain flows rigorously, to avoid the loss of funds in another liquidity squeeze. Years of experience in the space have taught us that constant alertness is key to not getting caught off-guard by sudden errors like withdrawal limitations in the case of FTX, or the de-pegging of assets like Terra’s UST earlier this year.

We are therefore happy to confirm that we have not been exposed to FTX's liquidity crunch and subsequent bankruptcy. Additionally, we have pulled all funds off exchanges that do not meet our risk management requirements and reduced our exposure to USDT to a minimum (due to a slight de-peg). This goes not only for funds we manage in our core business as designated market-maker for token issuers and exchanges, but also for our investment product, where we are slightly up for the month and have fully de-risked for the time being.

On the other hand we know that a lot of institutions and individuals have taken massive hits. Our thoughts are with you and we hope for many of the great projects to persevere through this challenging time. We now expect another cascade of deleveraging from projects who were financially tied to FTX and Alameda through borrowing and lending or their VC arms exposure through equity and tokens. The contagion also spreads to derivatives on blockchains where FTX and Alameda were heavily invested. The most prominent example being soBTC (Sollet, the wrapped version of BTC on Solana), which de-pegged to well below 1000$ value versus a BTC price of roughly 16700$ at the time of writing.

Generally, the current situation confirms two strategic pillars for us:

(1) Contrary to the negative example of unregulated and intransparent CeFi, flovtec has correctly chosen Switzerland as its home for the sake of stability and a progressive regulatory framework. This decision was made in 2018 and has now been reaffirmed once more. We believe it is important to be held accountable for your actions in order to build trust and reputation. Therefore, we call for faster and better regulation across countries and for crypto companies to embrace regulation instead of avoiding it.

(2) The failure, corruption and lack of transparency demonstrated by major CeFi institutions are a great case for DeFi. Protocols worked as intended, as all information were publicly available and collateralization and liquidations fully automated on-chain. Hence, we will stick to our efforts of integrating and advancing DeFi solutions as an important vertical of our business.

Amidst the negative sentiment and turbulent market, we are happy having met plenty of ambitious and industrious builders in Lisbon last month. Our Business Development team got the chance to visit Web Summit alongside more side events than we thought were possible in two weeks. Things are moving fast behind the scenes and we are sure that the projects coming out of this crypto-winter will be of substantial disruptive scale. Web3 industry events are uniquely heterogenous in terms of the crowds they attract. Bringing these different people together behind a common vision breeds plenty of creativity and opportunity, while creating value in the long run

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