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Crypto lending world sways under risk and turmoil

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Cryptocurrency lending has run into trouble amid falling values and risky bets
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Starting with the lofty goal of competing with traditional banks, cryptocurrency lending giants and their clients now face financial ruin due to their appetite for risk and a paucity of regulatory guardrails.

Celsius Network, which suspended withdrawals in mid-June, had advertised a seemingly difficult-to-reconcile mix of interest rates, charging just 0.1 percent for loans, but paying more than 18 percent on deposits.  

Weeks later, savings accounts, that amounted to $11.8 billion in mid-May, remained frozen.

“Celsius is going bankrupt one way or another,” said Omid Malekan, a professor at Columbia University. “Even if they recoup 98 cents on the dollar for their depositors, no one would ever want to use it.” 

Since then, other operators have faced a similar fate, from CoinFlex to Babel Finance, which also tried their hand at lending and had to freeze withdrawals, while Voyager Digital had to limit them.

These platforms allowed clients to deposit cryptocurrencies, and either receive interest or borrow digital money by using their savings as collateral. 

“It’s a real shame things got to this point,” said one Celsius user contacted on the Reddit platform, who claimed to have over $350,000 tied up on with the lender.

“Clearly Celsius should have planned for this kind of scenario,” the user added, speaking on condition of anonymity.

The devastating sequence started with the sharp decline of cryptocurrencies, including bitcoin which lost nearly 60 percent of its value in the past six months.

The plummeting value — which dropped as global inflation accelerated and Russia’s invasion of Ukraine rattled the world economy — led to a chain reaction and forced borrowers to provide new financial guarantees or immediately repay loans.

Some borrowers, such as the Singaporean investment firm Three Arrows Capital which is now in liquidation, could not provide the creditors enough cash to cover withdrawals and froze client accounts.

“The majority of these companies had provided uncollateralized or undercollateralized loans,” said Antoni Trenchev, co-founder of Nexo, another crypto platform that he said avoided trouble by following a stricter lending policy and “prudent risk management.” 

Unlike banks, these lenders were not required to hold cash in reserve against bad loans.

– ‘Deep need for regulation’ –

A handful US states have opened or expanded investigations into Celsius, and some, including Alabama, last year ordered the platform to stop lending to their residents.

“I do expect there to be a very strong crackdown across the board,” Malekan said. “There’s a lot of fodder there for governments to go after.”

Despite the turbulence, most observers expect cryptocurrencies to recover from the current lending trouble and don’t believe this spells an end for loans in the sector. 

“It’s not the worst crisis crypto has had,” said Charles Jansen at S&P Global Ratings. 

Malekan said the situation offers an opportunity to weed out weaker firms.

“During a bear market, you learn which were the projects that have a core value proposition and solve an actual problem, versus which are the ones that were just a pipe dream.”

Some, like Trenchev, expect a major consolidation in the sector with healthy operators gobbling up those that are struggling.

The episode also has raised awareness of the risks of a lack of government oversight. 

“There is a deep need for regulation, which is something that everybody in the field agrees on,” said Jansen, whose company is vying to be recognized as risk assessor in the crypto world.

In the absence of a specific regulatory framework market watchdog, the Securities and Exchange Commission, has been taking the lead but largely with punitive steps.

Several bills have been introduced in the US Congress in recent months that aim to address the need for closer oversight, but a bipartisan Senate proposal from Republican Cynthia Lummis and Democrat Kirsten Gillibrand has been gaining momentum. 

The bill has been well received by the crypto community, especially because it empowers the sector’s preferred regulator, the Commodity Futures Trading Commission, over the SEC. 

Some critics see the proposal as too accommodating. 

“It’s bipartisan in the sense that senators from different parties are giving the crypto industry pretty much what it wants,” tweeted Hilary Allen, a professor at American University’s Washington College of Law. 

“It gives most jurisdiction over crypto assets to the CFTC, which has no investor protection mandate and far fewer resources than the SEC,” she added. 

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Uber courts drivers by letting them pick rides

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Uber drivers in the United States who had to accept ride requests before learning where they were headed will soon be seeing details of trips being sought along with the fares
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Uber on Friday said it will let drivers in the United States see trip details before deciding whether to accept them — a new feature long sought by drivers.

A common lament by drivers at the app-summoned ride platform has been that they have to accept a request before learning where trips will take them, or how profitable they will be.

“Our new trip request screen makes it easier for drivers to decide if a trip is worth their time and effort by providing all the details — including exactly how much they’ll earn and where they’re going — upfront,” chief executive Dara Khosrowshahi said in a blog post.

Revealing details only once a driver had accepted a trip was seen as a way to ensure riders would get picked up promptly, and not be snubbed because they were headed to locations deemed undesirable by drivers.

But Khosrowshahi said drivers have made it clear that they want more flexibility and choice.

Uber said the new feature, called Upfront Fares, was tested in several cities and was a success with drivers while resulting in shorter wait times for passengers.

The ride-sharing firm will also shift from sending drivers a single ride request at a time, to letting them pick from a list of detailed passenger requests in an area.

Uber is engaged in a long-term effort to prove that its business model is socially and economy viable.

The “gig economy” — which uses temporary independent contractors for short-term tasks — has grown rapidly since Uber’s launch in 2009 and is promoted as a flexible way for people to earn money without the constraints of a full-time job.

But there has been growing backlash in countries around the world about the conditions and dangers gig workers face.

Uber driver ranks — which shrank during the Covid-19 pandemic — have not rebounded as quickly as demand for rides, and soaring fuel costs have made the gigs less attractive.

The firm in March announced a surcharge on both rides and Uber Eats meal deliveries that would go directly to drivers to help offset high fuel prices.

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Elon Musk fires back at Twitter in court battle

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Court rules require Elon Musk to provide a public version of his 'confidential' counter claims against Twitter as the court battle over holding him to the terms of the $44 bn buyout deal heads for trial in October.
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Elon Musk on Friday filed claims against Twitter as he fights back against the tech firm’s lawsuit demanding he be held to his $44 billion buyout deal.

Musk’s counter-suit was submitted along with a legal defense against Twitter’s claim that the billionaire is contractually bound to complete the deal he inked in April to buy Twitter, the Chancery Court in the state of Delaware said in a notice.

The 164-page filing was submitted as being “confidential,” meaning the documents were not accessible by the public, the notice indicated.

Rules of the court, however, require Musk to submit a public version of the filing with trade secrets or other sensitive information redacted.

A judge has ordered a five-day trial over Twitter’s lawsuit against Musk to begin on October 17.

The Tesla boss wooed Twitter’s board with a $54.20 per-share offer, but then in July announced he was “terminating” their agreement on accusations the firm misled him regarding its tally of fake and spam accounts.

Twitter, whose stock price closed at $41.61 on Friday, has stuck by its estimates regarding accounts run by software “bots” rather than people, and argued that Musk is contriving excuses to back out of the contract.

The social media platform has urged shareholders to endorse the deal, setting a vote on the merger for September 13.

“We are committed to closing the merger on the price and terms agreed upon with Mr. Musk,” Twitter chief executive Parag Agrawal and board chairman Bret Taylor said in a copy of a letter to investors.

Billions of dollars are at stake, but so is the future of Twitter, which Musk has said should allow any legal speech — an absolutist position that has sparked fears the network could be used to incite violence.

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Musk, Twitter get Oct. 17 trial in buyout fight

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Twitter is due to face off with Tesla boss Elon Musk on October 17 in the US state of Delaware in a buyout trial
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Twitter’s lawsuit to force Elon Musk to complete his $44 billion buyout bid is set to go to trial on October 17, a US judge has ordered, in a case with major stakes for both sides.

The trial is due to open in a court in the eastern state of Delaware and is set to last five days to decide whether Musk can walk away from the deal.

The Tesla boss wooed Twitter’s board with a $54.20 per-share offer, but then in July announced he was “terminating” their agreement on accusations the firm misled him regarding its tally of fake and spam accounts.

Twitter has countered by saying Musk already agreed to the deal and can’t back out now.

An order from the judge handling the case, Kathaleen McCormick, lays out an expedited schedule to resolve a fight that has left Twitter in limbo.

She reminds both sides that they “shall cooperate in good faith” on matters like handing over information to each other, a key topic that can result in delays. 

Billions of dollars are at stake, but so is the future of Twitter, which Musk has said should allow any legal speech — an absolutist position that has sparked fears the network could be used to incite violence.

Twitter blamed disappointing results last week on “headwinds,” including the uncertainty imposed on the company by Musk’s chaotic buyout bid.

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