First presented at the “Fintech Revolution" class at Boston University on March 28, 2023. All citations and sources in the speaker notes.

1. The Fed and FDIC bailed out
“crypto friendly” banks
Or, why all residents should be allowed to opt into
accounts at the central bank
1

2. Disclaimer
The views expressed in this presentation are mine alone and do not necessarily
reflect the views of my employer and any company I advise.
Note: I am not a lawyer.
2

3. Unfortunately due to how prevalent conspiracies are in the
coin world, we have multiple competing timelines. The
canonical one is constantly being Sybilled by coin
lobbyists and their donors.
3

4. What we all kind of agree upon…
(1) Centralized (crypto) lenders received rehypothecated collateral that was
pledged to other lenders by bullish traders both of whom had poor (or no) risk
management systems or controls.
(1) Anchor - an asset management dapp - unsustainably juiced yields for UST
(TerraUSD) deposits. This came to a head in early May 2022.
4

5. (Second) Terra / Luna depeg
May 10, 2022:
UST was a native token on the Terra blockchain - that attempted to peg to the U.S. dollar - and suffered an existential
depeg event and never recovered.
Luna, the staking token for the Terra blockchain, also collapsed. Together between $40-$60 billion in paper value
evaporated in less than a week. Do Kwon, one of the founders of Terraform Labs, journeyed to Southeast Europe.
5

6. What happened during the first depeg?
On February 16, 2023, the SEC sued Terraform Labs (TFL), naming Do Kwon as
one of the defendants.
Without naming the trading firm involved (likely Jump in Chicago), we learn that
during UST’s first depegging event in May 2021, TFL asked for help from market
makers to help restore the 1:1 peg. As part of the deal with Jump, it received
heavily discounted Luna. Yet in public, Kwon and others state that the algorithm
organically restored the peg.
6

7. 7

8. Then what happened?
8

9. 9

10. What was another domino?
Less than two months after the collapse
of Luna/UST, Three Arrows Capital
(3AC) filed for bankruptcy protection.
10

11. 11

12. How much value was wiped out
leading to their bankruptcy?
12

13. 13

14. They also claim that Luna was one of their largest trading
positions pre-collapse.
14

15. 15

16. The co-founders flew to UAE where at least one of them
currently resides.
16

17. Shamelessly they attempted to raise $25 million for a new
exchange, GTX, earlier this year.
17

18. Days after 3AC’s demise, Voyager Digital filed for
bankruptcy
18

19. 19

20. Collateral damage impacted the wallet-turned-brokerage
firm Blockchain.com
20

21. 21

22. 22

23. Days later, Celsius, another centralized lender, files
for bankruptcy
23

24. 24

25. In September the CEO, Alex Mashinsky, resigned. But the
drama didn’t stop there.
25

26. 26

27. Contagion spared no one, including poorly named
Hodlnaut
27

28. But the biggest had yet to come
28

29. 29

30. 30

31. 31

32. Cryptobros live in a completely different multiverse
According to coin conspiracies, the start of current wave began in December 2022
32

33. 33

34. But this is factually incorrect. The waves of withdrawals
began in November, when FTX collapsed, not in
December.
34

35. U.S.-based pegged coin issuers often deposited the bulk of
their “reserves” in a handful of midcap banks including
SVB.
Upon the collapse of SVB, Coinbase, the co-issuer of
USDC announced it would halt redemptions.
35

36. 36

37. 37

38. What actually happened
● CEO of SVB personally lobbied for dereg in 2018
○ But with ~2.5% liabilities insured via FDIC, SVB was “de facto a shadow bank masquerading
as a real bank”
● As did Barney Frank who then became a board member of Signature (and
netted ~$2.5m in director fees)
● 2018 dereg that both Lael Brainard (then Fed governor) and Liz Warren
fought against
● SI, SVB, Signature… fundamentally: these were all niche banks servicing a
highly cyclical sector dependent on cheap money.
● “Coup” at FDIC in 2018 via “hot” deposits (brokered deposits)
38

39. Barney Frank and other coinvangelists are wrong
According to Martin Gruenberg, Acting chairman of FDIC:
● 68% of Silvergate's deposits were withdrawn after FTX collapse
● The ten largest deposit accounts at SVB held $13.3 billion in the aggregate.
(probably why VC billionaires were freaking out on social media)
● Signature Bank lost 20% of its deposits in a matter of hours on March 10, the
day SVB was shut.
● Signature had a negative balance at the Fed at the close of business, and
“bank management could not provide accurate data regarding the amount of
the deficit.”
39

40. 40

41. 41

42. 42

43. 43

44. Victory lap? Grave stomping? How about bonafides from
over two years ago.
Twenty six months ago I literally named two of the banks -
Silvergate and Signature - that could go bankrupt creating
the conditions for a peg break, thereby exposing users to a
depegging event for USDC.
44

45. 45

46. 46

47. Yes, I named two of the specific banks and how ultimately
they would need to be backstopped by the Fed and FDIC.
But that didn’t prevent a bank run.
47

48. 48

49. 49

50. Back to centralized
lenders… and be sure to
check out the timestamps.
50

51. 51

52. The same guy who conjured up the “Choke Point 2.0”
conspiracy theory also carried water for BlockFi
52

53. 3.5 years later
53

54. 54

55. 55

56. Still haven’t finished with the lenders
56

57. 57

58. And you’ll never guess but… Genesis was owed, $1.2
billion by Three Arrows Capital
58

59. 59

60. 60

61. 61

62. Dominoes
● Ultimately every major centralized “crypto” lender collapsed in
the past 12 months taking down with it a number of other coin
companies with it.
● And this had a knock on effect in the real U.S. financial system
because customers and clients attempted to withdraw and/or
transfer their assets from a handful of mid-tier banks.
● This in turn led to an unintentional run on the very banks that
had pivoted into “crypto” banks, including two that held
“reserves” for at least one pegged coin issuer.
62

63. Discussing the (mini?) banking crisis is a topic for the
Appendix at the end but before we go…
● There is plenty of blame to go around but fundamentally the collapse of the
centralized (coin) lending ecosystem last year was self-inflicted due to a lack
of accountability and financial controls, specifically around collateral
management. Counterparties repeatedly lied to one another and LARPed
their way to riches.
● Creating external scapegoats and boogeymen is part and parcel to the
conspiracy theories that some coinfluencers resort to, but most of the blame
falls squarely on the shoulders of an industry-wide affinity fraud: coin traders
trusted other coin traders and few questioned the solvency as long as
“Number Go Up.”
● One way to mitigate this type of fraud in the future is to require collateral be
deposited on-chain at all times. One of the few survivors of this debacle were
users of the “defi” lending dapps such as Aave.
63

64. Contact
tim@postoaklabs.com
@ofnumbers
64

65. Appendix: Describing a (mini) banking crisis with tweets
65

66. 66

67. 67

68. 68

69. 69

70. 70

71. 71

72. 72

73. 73

74. 74

75. 75

76. 76

77. 77

78. 78

79. 79

80. 80

81. 81

82. 82

83. 83

84. 84

85. 85

86. 86

87. 87

88. 88

89. 89

90. 90

91. 91

92. 92

93. 93

94. 94

95. 95

96. 96

97. 97

98. 98

99. 99

100. 100

101. 101

102. 102

103. 103

104. 104

105. 105

106. 106

107. 107

108. 108

109. 109

110. 110

111. 111

112. 112

113. 113

114. 114

115. 115

116. 116

117. 117

118. 118

119. 119

120. 120

121. 121

122. 122

123. 123

124. 124

125. 125

126. 126

127. 127

128. 128

129. 129

130. 130

131. 131

132. 132