The crypto financial system was built by a bunch of young people who left traditional finance because they really love building new toy financial systems and crypto offers them a fun sandbox in which to do it. If you went to those people and said “hey, can you design a system for trading claims on bankrupt crypto firms?” they would be like “sure that sounds really fun.” And a lot of them have a lot of time on their hands right now, what with their crypto firms having gone bankrupt. So, so, so:
The founders of a bankrupt crypto hedge-fund firm are seeking to launch an exchange where creditors to insolvent digital-assets firms, including their own, would be able to buy and sell claims.
Su Zhu, a co-founder of the bankrupt crypto hedge-fund manager Three Arrows Capital Ltd., said that he and others are seeking to raise $25 million in seed money for the new platform. A pitch deck to potential investors, seen by The Wall Street Journal, referred to the company as GTX, a poke at the fallen crypto exchange FTX.
Mr. Zhu said that GTX isn’t the final name of the company. The other founders include Kyle Davies, who co-founded Three Arrows, and Mark Lamb and Sudhu Arumugam, the co-founders of crypto exchange CoinFLEX. They are likely to finalize a name for the company next week.
Mr. Zhu said some Three Arrows creditors would have the option to convert their claims into equity in the new claim-trading company.
I just! Absolutely magnificent stuff. “We were too good at taking your money, sorry about that, but to make up for our losses we’ll let you bet on our ability to take your money again.”
The biggest problem with the crypto financial system is that it is relatively bad at trading real stuff: Crypto exchanges are for trading crypto tokens, and without underlying cash flows or real-world businesses those have a distressing tendency to go to zero and bankrupt everybody. But if you build a crypto exchange whose central product is all the money people lost on the last crypto exchange, you are solving that problem. The net amount of money made in crypto fluctuates wildly, but the total supply of (1) money made in crypto plus (2) money lost in crypto can only really go up. If you build an exchange to let people trade their crypto losses, you will have a durable business.