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29th December 2022 > > Midas Investments.

tl;dr

Another (minor) centralised cryptocurrency exchange shuts up shop, warning us that FTX contagion is an ongoing risk for us.


Market Snap








Market Wrap

That was a delayed sell-off by stocks to the jump in treasury yields, though I notice that one mainstream newspaper’s headline today is “Investors fill their boots after China relaxes pandemic curbs”.


That reporter and I must have a different understanding of the phrase to “fill one’s boots” but as regular readers know all too well, I am frequently at odds with much of the financial reporting we see today. I should explain that there are some excellent individual reporters whose management are the ones who fail to understand the financial world.


Occasional Series - Afghanistan

The UN security council has said that it is “deeply alarmed” by the misogynism inherent in the Taliban’s theocratic rule over this poor, benighted country.


That will tell ‘em.


Curious Cryptos’ Commentary — Midas Investments

Midas Investments is, or was, one of the smaller centralised cryptocurrency exchanges.

On Tuesday Midas halted all withdrawals, deposits, and trading, which is never a good sign. Withdrawals have now been reactivated but with one key proviso.


Investor’s funds balances held on Midas in BTC, ETH, and stablecoins will have a haircut of 55%, but apparently no other coins will suffer the same fate. Details can be seen here:



According to this press release, assets (i.e. customer deposits) total $52mm whilst liabilities total $115mm.


FTX collapsed primarily because senior management perpetrated a fraud on its clients, by using their deposits for Alameda Research (the associated hedge fund) to use to trade. This was specifically excluded in FTX’s T&Cs (terms and conditions).


I have no idea what the T&Cs for Midas said, but it’s clear that Midas did not hold 100% of customer deposits in a segregated account. Even if this was allowed for in the T&Cs it is a suicidal act for a centralised cryptocurrency exchange to operate in that way given the volatility inherent in cryptos.


The press release gives us some information about how these funds were used inappropriately with losses due to:


“$14 million Ichi protocol in April 2022

$15 million DeFi Alpha portfolio in Spring 2022

$1.5 million due to Harmony bridge hack

$3 million due to FTM token’s price change

$15 million due to balancing MIDAS token sells on an illiquid market

$10 million due to paying higher rewards in native and MIDAS Boost than what was being earned through DeFi”


Midas was using customer deposits to get involved in high risk DeFi (decentralised finance) projects, as well as creating and promoting its own native coin. Sounds all too familiar.


Investors whose deposits suffer a 55% haircut will have the balance made up by receiving Midas tokens. But don’t hold your breath as the statement makes this comment about Midas coins going forward:


“We will also stop providing liquidity for the MIDAS token and aim to remove all liquidity from it, making it fully tradable by the community.”


Well that’s going to zero in short order, though perhaps there are opportunities for the brave.


Having traded around $30 before the news, yesterday MIDAS was changing hands at a cent. Right now on Uniswap it is priced at over 25c, though with minimal volume, having reached a high of 45c. A 4,500% return in under 24 hours makes someone extraordinarily lucky. Not one for the CCC treasury I am afraid.


News like this confounds me.


Here was a small, undoubtedly unregulated, cryptocurrency exchange furiously attracting investors’ deposits with unsustainably high interest rates. At one point nearly a quarter of a billion dollars headed their way.


Despite the unsustainably high interest rates, the risks to an investor making deposits on a platform like this far outweigh any potential return.


Why do people continue to make this schoolboy error?


I repeat once again.


Do not keep more than 5-10% of your crypto assets on a centralised exchange, preferably only Coinbase or Binance.

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