8 min read
Crypto Investment Firm Midas Closure: Reasons and Pivot to CedeFi
In the spring of 2022, Midas DeFi portfolio suffered a cumulative loss of 50 million dollars (20% of $250 million AUM). After Celsius and FTX events, the platform experienced over 60% of AUM being withdrawn, creating a large asset deficit.
By: Flagship Team
I’m Trevor, the CEO of Midas Investments, and I am writing to you today with a heavy heart to announce that the Midas platform is closing down. In the spring of 2022, Midas DeFi portfolio suffered a cumulative loss of 50 million dollars (20% of $250 million AUM). After Celsius and FTX events, the platform experienced over 60% of AUM being withdrawn, creating a large asset deficit. Based on this situation and current CeFi market conditions, we have reached the difficult decision to close the platform.
Despite the damage that was done by this event, this is the only way to move forward for Midas to build something relevant to this new market. We aim to focus on a new project that aligns with our vision for CeDeFi. This project will be fully transparent, on-chain, and built with the goal of offering a new and improved investment experience.
This article sums up the breakdown of this event, but I have prepared a YouTube video with a transparent explanation, including our DeFi Portfolios and PNL. I strongly suggest watching the video on our YouTube channel.
Challenges we faced
In 2021 Midas’ business model revolved around DeFi yields, which easily covered the highest yield on the market.
In the fourth quarter of 2021 and the first quarter of 2022, we experienced rapid growth and our assets under management increased by 15 times. It applied a lot of stress to the company. The AUM growth that we faced was forcing us to restructure our portfolio and diversify our DeFi portfolio into almost every investment that was presented on the market.
We reduced the rates in February for the first time when it was obvious that we cannot sustain the yield we give to users.
Meanwhile, in Spring the crypto and DeFi markets faced challenges, and our investment portfolio suffered cumulative losses of 20% or approximately 50 million dollars.
14 million dollars were lost in Ichi protocol, and 15 million dollars due to DeFi Alpha portfolio position’s value decreasing.
Additionally, through the implementation of self-build analytic balance sheet infrastructure, we saw that the price dynamic of altcoins presented on our platform was causing deficits in the balance sheet, i.e., Midas portfolio held more FTM tokens than the users had on the platform.
In response to these losses, we implemented a full de-risking of the portfolio in May 2022 and developed new investment business models, such as CeDeFi, as well as other investment tools, in an effort to recover those losses and prepare for the next bullish cycle. However, despite these efforts, we experienced an outflow of assets of more than 60% over the course of six months due to events involving LUNA, Celsius, and FTX. This made it impossible for us to sustain our fixed yield model.
Over the past eight months, our team has been focused on identifying and capitalizing on opportunities to balance our assets and liabilities. This included launching CeDeFi strategies, seeking fundraising, and exploring opportunities with DeFi protocols. Despite these efforts, the extensive withdrawals due to the insolvency of Celcius and FTX, coupled with reduced yield opportunities on the market, made it impossible for us to cover daily payouts to users due to the assets deficit.
I want to clarify that only Midas C-level employees were aware of the asset deficit. The community team, marketing team, support team, IT team, and platform team were not aware of this issue. The asset deficit was caused by the long-term risk of DeFi investment, the instability of our business model after the loss of assets, and the illiquidity of the Midas token.
Decomposition of the balance deficit
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
Decomposition of balance deficit:
- $14 million Ichi protocol in April 2022
- $15 million DeFi Alpha portfolio in Spring 2022
- $1.5 million due to Harmony bridge hack
- $3 million due to FTM token’s price change
- $15 million due to balancing MIDAS token sells on an illiquid market
- $10 million due to paying higher rewards in native and MIDAS Boost than what was being earned through DeFi
More information on a quarter-by-quarter basis is in the YouTube video.
Midas plans to balance assets and liabilities
On December 27th at 11:00 AM UTC, we will disable deposits and swaps on our platform. Withdrawals will be disabled for 2-3 hours while we ensure that calculations and balance adjustments have been made correctly. Once this is done, you will be able to withdraw the remaining assets from the platform, with any rewards earned being deducted from your balance.
IMPORTANT: In the video, I say that our target for balancing is 48%, but due to withdrawals from the platform and swaps on Midas token in the recent four days, the final number is 55% of the balance.
- We will adjust user balances by balancing remaining liabilities in BTC, ETH, and stablecoins with remaining assets, deducting 55% and rewards earned.
- Balances in other assets, such as BNB, AVAX, FTM, and CeDeFi, will not be impacted aside from the reduction of historical earnings;
- Users with balances lower than $5,000 will not have their balances adjusted aside from the deduction of earnings. Also, your balance will not be lower than $5,000 (minus deducted rewards).
- The adjustment to users’ BTC, ETH, and stablecoins will be compensated in MIDAS tokens, which can also be withdrawn from the platform;
- MIDAS tokens will be swapped for the token of the new project, which will be built on principles of full transparency and will embrace the innovations developed by the Midas team over the past six months, such as CeDeFi;
- We will also stop providing liquidity for the MIDAS token and aim to remove all liquidity from it, making it fully tradable by the community.
As an example, here is how balances will be updated.
- In the first case, if you have a balance of $5,000 and $200 in all-time rewards, your new balance will be $4,800.
- In the second case, if your balance is $5,000 but your all-time rewards on a larger deposit are $10,000, then we will have to deduct your entire balance.
- In the third case, if your balance is $15,000 and you have $2,000 in all-time rewards, we will first deduct the all-time rewards and then multiply it by the reduction rate (55%).
Based on how much we deduct from your balance, we will give MIDAS tokens as compensation based on the price of the announcement date (12.27.22). MIDAS tokens will be swapped to the token’s of the new project.
The Midas team estimates that demand for transparent DeFi resources from retail and institutional clients will reach around $100 billion in the next five years. To meet this demand, Midas plans to offer scalable, on-chain, verifiable, tokenized CeDeFi strategies for both CeFi and DeFi users.
These strategies will include yield-bearing BTC, ETH, and stablecoins with mint and bid functions, as well as a treasury that holds liquid DeFi yield-bearing positions managed through mint and redeem functions. Midas also plans to offer yield market indexes and leveraged long and short assets through collateral positions.
The new project’s business model will involve a revenue share of ETH transferred to the Midas token. The team aims to reach a market cap of $200 million within two years. Holders of the Midas token will receive a share of the revenue from the protocol being created, as well as upside from the platform’s growth and market cap increase.
In an ideal world, investors would hold both the Midas token and the token of the new project, receiving revenue from the protocol as well as upside from the functional asset.
- In January, Midas will focus on market research and prototyping for DeFi and CeDeFi business models, as well as creating prototype vaults and strategies and developing new investment processes.
- In February, the team will continue with market research and begin investment traction, working on the development of a minimum viable product and engaging with DeFi protocols.
- In March, private tests of the product will be conducted.
- In April, Midas plans to swap the current token for a new one.
The goal of the new project is to create a win-win situation by connecting competing protocols with liquidity and offering a simplified yield to a range of DeFi and CeFi audiences. The first product will be a transparent, on-chain treasury that allows users to mint tokens backed by stablecoins, BTC, or ETH by depositing collateral in ETH. Feedback and suggestions are welcome.
I want to personally express my gratitude to our incredible community and all that we have achieved together in the past 5 years with Midas. This is not the end, but rather the beginning of something new. I understand the difficult decision to close Midas and apologize to anyone who lost money. I will do my best to make sure you can recoup your losses in the new project.
I want to apologize to all of the Midas holders who have been affected by this situation. I understand that many of those who had the most faith in me and my team have suffered the most, and I am deeply sorry. I promise to do my best to create a new project that is free from the fixed yield model and is based on reality and transactional business, so that you can benefit from our intellectual work during the next bullish cycle.
I will hold an AMA session tomorrow at our YouTube channel, at 14:00 UTC time. Send questions to Discord in a specific channel, and I will cover them tomorrow. The recording will be available on YouTube. And before sending questions, please, watch the video with my full explanation and prepare your questions.
Thank you for being a part of the Midas community. We truly tried our best, but it was not enough.
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