Small crypto funds are next to fall. Case study: Finblox

Yield farm and “savings platform” Finblox just cut off withdrawals and yield, after a few days of users reporting problems withdrawing funds.

Finblox was tiny. It wasn’t important or systemic in crypto, the way Celsius or Three Arrows were. But Finblox’ failure is a symptom of trouble at the smaller end of the crypto market.

There are a pile of little funds like Finblox that are going to get swept away in the storm — taking investors’ money with them.

What is Finblox?

Finblox announced itself as a “High-Yield Digital Asset Savings Platform.” They literally called themselves that. [press release]

The company was founded in December 2021 by Peter Hoang, previously of trading startup Gotrade, and Dmitriy Paunin, formerly CTO at Philippine crypto exchange Coins.ph. Its investors included Sequoia Capital and the recently-collapsed Three Arrows Capital (3AC).

It was a year into the crypto asset bubble. The money was flowing freely, and robust and respectable financial institutions like Celsius were offering 20% interest rates — with only luddite naysayers like me saying the P-word.

Finblox promised up to ninety percent interest on staked funds — though the only token paying 90% was Axie Infinity AXS tokens. Interest was around 5% on bitcoin or ether, and around 12% on the larger stablecoins.

Finblox wouldn’t disclose their total assets under management, saying that that information was “proprietary” — but they did brag that their holdings were insured with crypto custodian Fireblocks for $45 million, and “our insurance covers a pretty decent sized chunk of our holdings.” [Reddit, archive]

It’s not clear whether Finblox knew that “high yield” is a well-understood euphemism for “Ponzi scheme,” or if they were leaning into it.

The collapse of Finblox

At 12:38 UTC on Thursday 16 June 2022, Finblox tweeted and emailed to its users “yeah we’re keeping your money bro, lol sucks to be you”: [Twitter]

We have been closely monitoring market conditions and numerous media reports regarding a prominent institutional borrower, Three Arrows Capital (3AC) — who is also an investor in Finblox.

A small fund can make money as a “feeder fund” — put the money into a larger fund, offer retail customers a convenient investment at slightly lower interest, and pocket the difference. But Three Arrows Capital fell over on Tuesday.

How is Finblox protecting your investment?

• Pause reward distributions on the Finblox platform for all users

• Change withdrawal limits (500 USD equivalent per day, up to a maximum of 1500 USD equivalent per month) for all levels of users

• Delay referral program and deposit rewards

Until this afternoon, “Verified Plus” users had a $50,000/day withdrawal limit. That’s now $500/day, up to $1,500/month.

The new $1,500/month limit has been made retroactive, according to aggrieved Finblox investors on Reddit. [Reddit]

However, there have been reports of withdrawals having been stuck for over three days — coincidentally, since Celsius stopped withdrawals on Monday. [Reddit]

But what about Finblox’s $45 million insurance with Fireblocks on their assets under management?

It turns out that Fireblocks doesn’t insure against counterparty risk. They specifically and only provide insurance against a particular list of cyber-attacks and hacks. [Fireblocks]

I’m pretty sure that Finblox was almost entirely a pass-through fund for Celsius and 3AC — and the money’s gone. You got rugpulled.

I haven’t verified this, but apparently 3AC would invest in small funds like Finblox and helpfully aid them in managing their investors’ assets. [Twitter]

What happens next?

Finblox was quilted from red flags. I particularly liked this post from 11 June, in which someone investigates Finblox’ reviews and discovers they’re largely fake. But Finblox called him up and reassured him, and now he’s a happy investor! [archive]

The good news is that Finblox hasn’t closed its doors, and is still responding to users’ email. And you can still try to get your money out … through a straw.

If you have cryptos in a small fund offering interest rates over 5% without a remarkably good explanation that you understand and can verify, then I strongly advise you to get your coins out as absolutely soon as possible. You can put them back when things stabilise, if you really must.

There are a pile of little funds like Finblox, with shiny web pages, and customers who are enormously happy — right up until they aren’t.

 

 



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5 Comments on “Small crypto funds are next to fall. Case study: Finblox”

  1. “If you have cryptos in a small fund offering interest rates over 5% without a remarkably good explanation that you understand and can verify, then I strongly advise you to get your coins out as absolutely soon as possible. You can put them back when things stabilise, if you really must.

    Fantastic advise any crypto users that happen to be in that position I would take what Mr. Gerrard said there very seriously.
    I do disagree with a decent amount of your analysis, but your investigative work is very much needed and appreciated. Good work sir.

  2. I wonder how much money was involved in that “It’s a fraud! .. The CEO has been in touch, and it’s now my favourite!” Damascene conversion.

  3. They were obviously “leaning into” the obvious. Good old Sucker Filter. Make the fraud blatant and transparent so you don’t have to waste effort persuading potential customers who might hesitate or investigate. Preselect the perfect suckers and take them down hard and fast.

  4. you will be banned and blocked if attempt to ask “reserved fund” on their Facbook, Reddit and Telegram

    My stablecoin funds are still ‘reserved’, essentially held hostage. Any attempts to discuss about reserved funds in the telegram group will bring about an immediate ban. I understand the need to moderate the chat group to control FUD, but restricting vital discussions such as this is downright unacceptable.

    Scroll down this trustpilot review page. 1515 ratings averaging to 4.9 for a young company like Finblox, with most of the reviews being given by ?fake accounts (with only 1 review) citing a common theme such as ‘amazing project’, ‘amazing app’ and so forth really raises suspicion as to the authenticity of these reviews.

    The telegram chat group has recently been joined by a string of inactive participants – hopefully not a way to bolster the size of the telegram chat group to make it more impressive?

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