South African Fund Rekt Yolo'ing Into Luna
In today's edition of YIYL, we return to my beloved South Africa, where financial blowups don't just do it big, they do it real big. Since bitcoin and shitcoins hit the shores of South Africa, we've seen 3 major blow-ups in BTC Global, MTI, and Africrypt.
These were all Ponzi schemes that didn't even leverage the assets they were talking about, they were just robbing peter to pay paul and hoping to get as big as possible, selling people on insane APRs and letting their greed get the better of them before exit scamming.
But there are plenty of legitimate businesses in South Africa that support bitcoin and shitcoin exposure, you can use these services once you've KYC'd but you can take custody of your coins if you choose. The vast majority of South Africans don't take self-custody and leave their funds on exchanges or with service providers and of course, every custodian carries risk.
A lesson several investors learned while getting their crypto exposure through a crypto investment company known as Invictus.
Crypto index funds
Invictus is not an exchange but offered investors the chance to get exposure to crypto without the need to manage multiple coins. They created several ETF-like products that utilized smart contracts to hedge crypto investments and spread them across crypto assets. Users would hold a token of a fund like crypto 10 or crypto 20 and the funds from those tokens would be rebalanced into a basket of the top 10 or 20 coins.
These creations made the company very profitable, but the search for alpha is always a game of risk and reward. As we soon find out, the shitcoin space isn't like the stock space, if a new high-flying stock enters the parameters of an Index fund it's vetted and audited before it gets listed and can gain exposure to that capital.
In shitcoins, there is none of that and when Luna came flying up the charts along with its UST stablecoin, the index fund naturally rebalanced to account for this token gobbling up liquidity.
The Luna crash landing
Instead of sticking to the tried and tested formula that was working for them, it looks like the fund went super risk on in the bull market.
From what we have been told, the majority of the ISG Funds (98%), a large part of the IBA Fund (48%), and a portion of the C10 cash hedge (40%) were exposed to the UST stablecoin.
Reports also indicate that Invictus Capital had around $22.5 million tied up directly in UST.In total, the $135 million managed by Invictus, approximately $80 million was invested in either Terra or Celsius.
While the Luna money we know is gone and never to be seen again, the funds tied up with Celsius are still anyone's guess as bankruptcy court proceedings continue.
Birds of a feather
Around the same time, 50% of Invictus assets nominated for cold storage were revealed to be held in Celsius. The funds are now locked. Invictus Capital is on the brink of bankruptcy and has filed for voluntary liquidation in the Cayman Islands through its holding company New World Holdings.
Unsurprisingly Alvarez & Marsal, the same firm representing Celsius, also represents Invictus. It told Celsius that
“it must not communicate with customers because they may be seen to be prejudiced in the event of a bankruptcy.”
Invictus Capital has been equally silent on the matter following its voluntary liquidation filing. So it looks like customers are in the same boat.
The CEO has left and the company has booted out most of their staff as they try to restructure, we'll have to see what they can salvage from their other investments, from Celsius and what they did have in cold storage once the dust settles.
This story has been awfully quiet in comparison to other local crypto blow-ups but I will try to follow it as new updates are made public.
Sources:
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Dear @chekohler!
Do individuals buy cryptocurrencies because South Africa and Nigeria have already lost the value of their national fiat currencies?
From my point of view, the African world, including South Africa, seems to buy cryptocurrencies instead of fiat money as a means of protecting personal property.😯