The FTX-related explosion will hit French players hard
It is still difficult to gauge where the shock wave will stop, especially from the collapse of the Samuel Bankman-Fried empire, which included the FTX platform. But the first effects are beginning to be felt in Europe and France.
On November 16, Coinhouse, one of France’s largest cryptocurrency players, announced the withdrawal of funds from cryptocurrency passbooks and the suspension of investments. He reminds that the systemic effect can seriously affect even companies registered as a digital asset service provider (PSAN) issued by the Autorité des marchés Financiers (AMF).
“There will be bankruptcies”
“The scope of this registration mainly concerns the fight against money laundering and the financing of terrorism,” recalls a French lawyer specializing in digital asset law. PSAN registration “doesn’t avoid counterparty risks,” agrees Pierre-Yves Dittlot, CEO and founder of Ledgity, which registered PSAN on July 5 to provide digital asset custodial services and digital asset exchanges.
Many French players, such as Coinhouse, which allow their customers to earn cryptocurrency-related income, used the services of Genesis, an important broker in the market. But the latter blocked the withdrawal on November 16 and announced that it was “temporarily” suspending the opening of new loans due to the “unprecedented turbulence” associated with the fall of the FTX. Genesis itself belongs to the Digital Currency Group, which is currently struggling to raise the funds it needs to survive.
Several PSANs also lost funds in the fall of the platform founded by Samuel Bankman-Fried. Arnaud Dartois, managing director of CoinShares, explains: “Having your funds in FTX made it possible to facilitate a certain number of transactions, especially to generate income.” “FTX also offered very efficient trading services and was seen as one of the strongest platforms in the market in terms of reputation,” he said.
According to our information, PSANs are currently trying to raise funds to absorb losses and eliminate the possibility of a possible bankruptcy filing. An entrepreneur in the sector fears: “There will be bankruptcies among French players in the coming months.”
Said productivity
“The least affected players will be those that have little contact with centralized counterparties and deal directly with decentralized financial protocols,” explains the head of one of the largest brokers in the French ecosystem. “But we shouldn’t kid ourselves, those who are directly and almost exclusively involved in decentralized financial protocols are mostly the smallest players,” he said.
In general, there are three ways for a cryptocurrency player to generate income. The first is to deal live with a decentralized finance (DeFi) protocol like Aave or Curve. In this particular case, there is no counterparty risk that could block the funds. One of the only risks here is that the protocol is hacked.
The second way is to use a centralized player like Genesis that will handle DeFi. “Applying to big players like Genesis provides access to a large network and simplifies procedures, especially providing fiat currency and cryptocurrency exchange service,” explains Arnaud Dartois.
The third way is to find additional sources of income by investing in the assets of the traditional financial system. This is particularly the path chosen by MakerDAO, a DeFi protocol with a total market capitalization (TVL) of around $11 billion, which invested $400 million in US Treasury bonds last month to offset declining returns in DeFi.
“Today, I believe that in the period of inflation, it is necessary to temporarily stop the income in cryptocurrency. If you add to this the risks of the counterparty in the context of the market as we live, it is no longer worth anything, “explains the French manager of PSAN. Pierre-Yves Dittlot analyzes: “The crypto market is still immature and concentrated on a few big players, which is important it mechanically increases the counterparty risk”. According to him, in the future, companies should better control the chain that allows them to offer income to their customers.
Some PSAN leaders have already planned to cover the losses with their personal funds. “Then it shouldn’t last too long. Personally, I did not create a company to have a deficit,” says one of them.
In addition to players such as Genesis or FTX, other partners used by French PSANs will also face difficulties. In recent days, doubts have been raised around the Nexo platform, which is increasing commercial approaches to French companies to free up liquidity.
