Crypto Firms Reckon With Risk Following Collapse

Cryptocurrency firms are re-tooling risk management to prevent another credit crisis

article-image

Source: Shutterstock

share

key takeaways

  • Crypto should watch its exposure to other markets and let algorithms handle lending, industry experts say
  • “We have seen a significant inflow of crypto companies coming to us asking for risk management solutions over the past month and a half,” an industry exec told Blockworks

For crypto builders hoping to move fast and break things, talk of risk management tends to really kill the vibe.

But Terra’s collapse wiping $2 trillion in nominal value from crypto markets, combined with Three Arrows Capital (3AC)’s loan default leaving a slew of lenders strapped for cash, many in the space are calling on crypto firms to manage risk more effectively.

Conversations with market participants reveal there is no silver bullet to mitigate risk, but simple corrections could limit the extent of future market downturns. Embattled crypto firms are also receptive to making changes.

Prior to the recent credit crisis, many crypto builders thought of risk management primarily in terms of hack prevention, Adam Zarazinski, the CEO of crypto analytics firm Inca Digital, told Blockworks. 

“If you’re looking at risk management and compliance just through the forensics lens, you’re looking at the market with blinders on,” Zarazinski said. “There’s a lot more data other than just Chainalysis.”

Zarazinski’s clients are now thinking more broadly about risk.

“We have seen a significant inflow of crypto companies coming to us asking for risk management solutions over the past month and a half,” Zarazinski said. 

Most companies asked for cross-market surveillance to guard against risky exposure and natural language data from social media that can identify market trends early.

Widespread leverage across crypto ramps up risk

Last week, Galaxy Investment Partners CEO Mike Novogratz admitted he was “darn wrong” about leverage risks in crypto and surmised that few could have seen the extent of dangerous exposure in the crypto space. 

Hindsight is 20/20, but some in the industry believe portions of the recent crash were preventable.

“Terra wasn’t a shock to anyone who spent time looking at the technology. People had been raising alarm bells for a long time,” Steven Goldfeder, CEO of Offchain Labs, said. “The information was out there” on which crypto firms were not trustworthy.

Meanwhile, US government officials continue to drag their feet on crypto regulation. California Rep. Maxine Waters announced Wednesday negotiations for a US stablecoin bill will be delayed until after the summer congressional recess.

“I hope people are more mindful and do further diligence,” Annabelle Huang, managing partner of Amber Group, said, “instead of saying, ‘Hey, he’s a crypto influencer, let me park my money with him,’ or ‘Just because my friends gave my money to him, it’s safe to [invest].'”

Court filings show Voyager Digital gave over-leveraged hedge fund Three Arrows Capital an unsecured $650 million loan, leading Voyager to declare bankruptcy when 3AC defaulted. 

Voyager and other investors in the $10 billion fund were drawn in part by 3AC’s reputation as a savvy dealmaker.

Remove the human element to help stay afloat

Huang comes from a traditional finance (TradFi) background and hopes crypto will pick up TradFi’s conservative borrowing practices. “If you have two to five times leverage, you risk being wiped out in a day,” Huang said. 

She also emphasized that collateral should be handled algorithmically to control for human error.

“A lot of the losses in the crash from some of the lending platforms likely resulted from the fact they exercised human discretion or extended favor to counterparties during the recession,” Huang said.

Ex-employees reported Celsius’ compliance department only contained three people, a tiny number for a crypto bank at one point handling $25 billion in assets. 

Bolstering risk management will require bear-market investment from crypto companies. 

Each of the companies Blockworks spoke to said lenders especially should look at bringing on additional full-time risk management staff.

“Companies are a little nervous to spend money but they all know they need more risk management,” Goldfeder said.


Get the news in your inbox. Explore Blockworks newsletters:

Tags

Decoding crypto and the markets. Daily, with Byron Gilliam.

Upcoming Events

Old Billingsgate

Mon - Wed, October 13 - 15, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

Industry City | Brooklyn, NY

TUES - THURS, JUNE 24 - 26, 2025

Permissionless IV serves as the definitive gathering for crypto’s technical founders, developers, and builders to come together and create the future.If you’re ready to shape the future of crypto, Permissionless IV is where it happens.

Brooklyn, NY

SUN - MON, JUN. 22 - 23, 2025

Blockworks and Cracked Labs are teaming up for the third installment of the Permissionless Hackathon, happening June 22–23, 2025 in Brooklyn, NY. This is a 36-hour IRL builder sprint where developers, designers, and creatives ship real projects solving real problems across […]

recent research

Research Report Templates.png

Research

Maple Finance has successfully navigated significant market challenges through its strategic pivot to secured lending (Maple v2) and the launch of its Syrup product. Syrup has become a primary growth driver, delivering sustainable, outperforming stablecoin yields and rapidly increasing TVL. The upcoming custody-first Bitcoin staking product (istBTC) presents another significant avenue for expansion. Crucially, Maple has achieved operational profitability, a key inflection point that, combined with a fully vested token and active buyback mechanism, strengthens its investment case. While valuation metrics suggest potential undervaluation relative to peers and growth, the primary forward-looking risk identified is the long-term sustainability of its current high-take-rate collateral staking revenue model.

article-image

LBTC and sBTC integrations unlock new DeFi yields for BTC holders

article-image

The Breakdown becomes your central hub for insightful, daily crypto macro analysis

article-image

What was a cool $500,000 would now be worth more than $7 million

article-image

Mersinger’s final day at the CFTC will be May 30

article-image

Squads CEO Stepan Simkin explained why the firm launched Altitude and how he’s thinking about stablecoins

article-image

Sponsored

Instead of endless wallet popups, users could connect once, set clear rules, and delegate permission to an app or to an AI agent.