Max Yampolsky

Max Yampolsky



Another CeFi platform #Midas Investments @Midas_platform is shutting down with a $63.3 million hole in the balance sheet. Read the full thread about what happened: #MidasInvestments

1. Midas Investments launched in 2021 as a Ce(De)Fi app that delivers a fixed yield on cryptocurrencies. It was one of the few products that delivered a very high yield on BTC, ETH, and stablecoins. BTC - 17% APY ETH - 23% APY USDT/USDC - 19% APY

2. The problem with such CeFi fixed yield products is transparency. As a user, you never know where the yield is coming from According to the founder, the source of the Midas yield was the "Algo" and DeFi There is not much info on the Algo apart from that it's "trending"

3. For DeFi positions, Midas farmed on various DeFi protocols from medium to high risk like Alpaca, Aave, and Olympus. But here is a caveat:

4. In Q3-Q4 2021, Midas experienced significant growth of investor deposits, growing from $3.3M in assets under management in July 2021 to $14M in October 2021 and $64.4 in December 2021. Is there enough liquidity to manage such an increase in portfolio and maintain the APY?

5. From January 2022 to March 2022, Midas AUM increased by another 351% to $262M in deposits. They started managing the portfolio in 70+ different DeFi protocols. That's where the problems started.

6. Managing 70 positions is increasing exposure to the long-tail risk. Aside from that, in March 2022 the $78m in customer deposits coincided with the overall market drop and resulted in a net loss for Midas team Yet, the yield was still being accrued on the customers' funds

7. The problem was that the yield was just a number on the screen. On the balance sheet, the liabilities and assets started to diverge. Starting from March '22 and through Q2 '22, Midas failed to generate sufficient yield on their $318M portfolio.

8. Additionally, Midas' position in @ichifoundation resulted in a -$15M loss due to bed debt on the protocol which was caused by overleveraging. This was not publicly disclosed to the Midas community

9. By the end of June 2022, Midas incurred -$40M of cumulative losses. Again, nothing of it was disclosed to the community and/or investors.

10. In Q3 '22, Midas portfolio again failed to generate higher yield than it offered to its customers. It resulted in a bigger hole in the balance sheet Jul - 4.11% APR Aug - 4.63% APR Sep - 5.13% APR For reference, their offered yield for BTC/ETH was ±9% and USDT/USDC - 13.5%

11. Here is the whole Q3 '22 PnL

12. Finally, in Q4 '22, Midas managed to earn a somewhat reasonable yield on their portfolio. But, due to market situation, customer withdrawals started to increase, which resulted in lower liquidity and reduced ability to generate enough return to cover for the remaining assets

13. In summary, Midas portfolio lost $15M from market volatility, $14M in Ichi protocol, $1.5M in Harmony hack, $3M for holding $FTM tokens, and $10M due to the negative cash outflows.

14. As a result of the increased liability and reduced AUM position, Midas was forced to shut down. Basically, any other significant market event could have wiped their ability to generate returns completely The delta between deposits & withdrawals looks like the following:

15. Total summary of #Midas assets <-> liabilities Total liabilities for BTC, ETH and Stables at 12.27.22: $115 million Total assets for BTC, ETH and Stables at 12.27.22: $51.7 million Deficit amount: $63.3 million

16. What will Midas do with existing investor deposits? According to their statement, they will adjust all existing investor balances by -55% and deduct all the rewards earned. Seems fair?

17. Midas is also announcing a new investment product which will be focused around CeDeFi, with the first prototype being available in March 2022.

18. My thoughts on this: Midas basically operated as a hedge fund that promised investors ±20% APY with almost no lockups There was nothing revolutionary in their product: they accepted investors' money and deployed it to various strategies on the backend. Just like any fund

19. But, it was unregulated + with poor risk management practices, which can be seen from the timeline of events Midas was operated by a team with a lack of financial and portfolio management experience, which just couldn't handle the pressure of managing a $400m+ fund

20. We can see such a pattern emerging in #Crypto, with people with no financial background going to create multi-million hedge funds (e.g. @carolinecapital + #Alameda) which result in huge damage for the industry.

21. As a conclusion: #Midas is not the first #CeFi platform to implode, and it is not the last. The old adage is as relevant as never before: Not your keys = not your coins. Stay safe in these crypto markets and always do your research.

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