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YC W22 Stablegains is being sued for losing $42M in funds from 4878 customers

653 points by donsupreme 4y ago

riffraff 4y ago
I imagine (and hope) those 5k where mostly crypto bros who knew what they were getting into. Who else expects 15% returns from a "safe" investment?
- moistly 4y ago
  I have a (ex-) friend who falls for every MLM scam that comes along. Naturally, she put everything into crypto. She would undoubtedly think she could make 15% with no risk. I believe a huge number of the MLM gullible are the dupes involved in these scams.
- fortran77 4y ago
  YCombinator's board? https://www.ycombinator.com/companies/stablegains https://www.ycombinator.com/companies/stablegains
  - ed 4y ago
    What is YCombinator’s “board”? Re their directory profile: every public YC company has one, even my defunct 11 year old startup —- it’s definitely not an active endorsement.
    - fortran77 4y ago
      The people at YCombinator who decide who to endorse, fund, and provide guidance to.
- devoutsalsa 4y ago
  I didn't invest because it was only 15% gains. Sad, but true. I actually read them their material & saw it was based on Anchor Protocol. When I saw that it was based on UST, and I couldn't figure how UST was backed by anything I understood, I opted out. One of the few times in crypto where I felt "do you won research" paid off for me.
  - vkou 4y ago
    > I didn't invest because it was only 15% gains I'm confused. Were you looking for a cryptocoin that was promising 1,500% gains? Anyone promising a safe 15% return in a world where your savings account earns 0.15% interest is trying to rob you.
    - renonce 4y ago
      It's unfair to compare it against a savings account. Even 1-year treasury bills would give you around 2% interest. It's just that banks are not willing to offer that premium to you.
    - negzero 4y ago
      Given you could get ~20% on anchor, why would you invest in something with lower return with no a priori reason to believe the returns are safer?
      - vkou 4y ago
        If a 20% better ponzi is better than a 15% one, again, I ask, why not a 1,500% one? There's new shitcoins born every day, promising these kinds of returns.
        negzero 4y ago
        There are almost definitely a priori reasons to think a 1500% one is much riskier. 20% is in the realm of possibility considering you could get ~15% yields from crypto.com, there were also some powerful players with deep pockets funding anchor paying the difference, and that there was almost 20bn$ TVL. Stablegains had nothing going for it, in fact it had all of the risk with none of the reward. 1500% APYs are usually attached to LPs carrying huge risks of impermanent loss rather than stablecoin staking and are usually very transient in that they evaporate within hours. FWIW I disagree with Anchor being termed a ponzi.
        deleted 4y ago
        [deleted]
- wickoff 4y ago
  Crypto bros would forgo the middleman and get the 20% yield instead.
- puranjay 4y ago
  As a recovering crypto bro, none of my other friends have been impacted by this entire UST/Luna meltdown at all Why? Because crypto bros are too degen to be okay with 15% yield lol
  - dropnerd 4y ago
    right, crypto nerds are swinging for multiple x, if not 100x or 1000x
- mdip 4y ago
  You would certainly think so ... I did. But I'm sorry to say that you are strongly overestimating the general population here. My friends know I'm the local crypto-geek[0] so Bitcoin and other cryptocurrencies and tokens are brought up to me all the time by people who's knowledge of what any of it is begins and ends with "Last year X coin was $7.00 and this year it's $100.00, and all of the other ones have had gains like nothing else I can invest in." I can think of at least 6 members of my extended family who are presently invested in cryptocurrency trading (many just say "Bitcoin" and don't actually have any) who are -- in every way -- technologically obliviously ignorant[1]. Half of them, however, are not otherwise uneducated people (one guy is a very well paid VP at a company everyone in my state has heard of and has an MBA from a major university ... he's just not in finance or tech). They're not thinking "well, 15% APY is insane/impossible to provide over the short term/impossible to ever guarantee unless they've invented a time machine or are breaking the law." They're looking at the percentage gains on Bitcoin or Ethereum (depending on when you acquired it, of course -- Lord knows it's taken a hit lately) and thinking "15% sounds easy for a company to pull off in this space." Everyone in my family who invested in some crypto used some company to hold their crypto. Almost all of them used services/companies that had enough of a strong scent of "scam" that I would have dismissed them without further research. Some used more mainstream crypto-sort-of-banks. Sort-of-banks because none of the companies that my family members chose for crypto trading were FDIC or otherwise insured in a manner that made sure the numbers they see on their page could be turned into dollars in a bank account somewhere else. The surprising thing is that none of them had any idea this was the case! A few family members thought they were buying Bitcoin because they were investing in "cryptocurrency" and it turned out they were buying some strange token running on the Ethereum network. I'll grant it's a small sample size, but in every way it's consistent ... it's a "gold rush" kind of frenzy filled, unfortunately, with a lot of fraudsters riding the wave of news around the crazy gains of crypto. The thing that scares me the most is that a few of my family members[2] have done very well trading crypto (4x/5x/10x their yearly salary). Some lost a little, the others gained a little. The ones that did well aren't treating it like a short-term gamble, even watching the prices drop ... it's like they're holding on to the stock of a company that they deeply believe in except ... there's no company. [0] I don't invest, I did mine Ethereum a while back/spent most of it and made a small profit but did it mostly to learn how the miner worked and how to write CUDA software. I worked SecDev for a couple of years at a global telecom and I enjoy the technology behind it all. [1] One of them -- not elderly -- called for help reconnecting to his 4G modem (their only internet service). The instruction "reboot your computer" was not understood. I fell back to "turn it off, count to ten, turn it on again." Nope, right back where he left it. I had not seen his computer setup so I could provide no more instruction. When I arrived I discovered he was "rebooting" ... the monitor. [2] Four, precisely, two who are distantly related through a great aunt and are working together, but are among the most irresponsible people with money I've ever known, and two who are quite good with most things financial. Edit: Realized my tone was harsh in a few places and there was one inaccuracy.
Kritik_Agrawal 4y ago
VCs and Incubators providing support to such "startups" (I would really not like to call these entities legitimate startups) causes them to look credible to the public in general and that's why so many people get duped. I am honestly skeptical about this whole Web3 thing, and while a connection has really managed to make my opinion a little less extreme, I think most of us agree that this kind of "startups" cause more harm than good
jshappy23 4y ago
Well alice let everyone know they are using anchor, and allowed people to transfer UST out of the wallet. Stablegain pretended to do more sophesitcated defi and misled customers that they were using USDC as the main coin, and money was made from lending USDC to overcollaterlized positions in bluechip tokens(BTC, ETH)
frontman1988 4y ago
Time to buy monero, visit plastic surgeon and disappear to El Salvador.
- wolongong942 4y ago
  Except the whole thing about living off crypto in El Salvador was just a grift all along.
deleted 4y ago
[deleted]
dmitrygr 4y ago
YC invested in what was clearly an outright fraud? Or did they pivot do hard that nobody noticed?
- VerminOctopus1 4y ago
  I mean, the company name alone should tell you all you need to know.
- devoutsalsa 4y ago
  A poor decision does not equal fraud.
  - dmitrygr 4y ago
    Promising a guaranteed 15% return is fraud. There is no place in reality where you can * guarantee * that kind of return.
    - devoutsalsa 4y ago
      They explain the risks on their website: https://stablegains.zendesk.com/hc/en-us/articles/4402687751569-Is-there-any-backing-security-on-my-deposit- https://stablegains.zendesk.com/hc/en-us/articles/4402687751...
      - ihalip 4y ago
        If there are risks, how can the 15% be guaranteed?
        devoutsalsa 4y ago
        Where do they say it's guaranteed?
        cinntaile 4y ago
        "You can now earn up to 15% APY interest on your cash with Stablegains. This is 30x higher than in your traditional bank*." Up to
devoutsalsa 4y ago
Here's a Twitter thread from @stablegains that clearly highlights the implosion as it's happening => USD.https://twitter.com/stablegains/status/1523874916206059525 https://twitter.com/stablegains/status/1523874916206059525
KingOfCoders 4y ago
"Stablegains makes earning with DeFi simple and safe for consumers and businesses alike."
- chii 4y ago
  There's no such thing as a free lunch, and you cannot earn above inflation returns without taking on risk. Even money market funds, which is what stablecoins are similar to for fiat currencies, are not without risk.
  - Ekaros 4y ago
    Can you even earn below inflation without risks? Actually you can't even keep your money/wealth without risks...
    - flaviut 4y ago
      TIPS and I Bonds
      - Ekaros 4y ago
        [flagged]
        Qub3d 4y ago
        At this point in your hypothetical, if we're still talking about the US dollar, you'll have a lot more to worry about than generating a return on your investment. If you think this is a serious potential outcome, then I suggest you forget about investing all together and instead start learning subsistence farming practices. Or you could buy Swiss bonds?
        bombcar 4y ago
        Since the US can print money to pay its debts you technically can’t “lose” in dollar-denominated bonds. But you can still lose to inflation, collapse of the US, etc. The term “risk-free rate” is used as a baseline in comparing other financial assets; there are still risks involved and for those above a certain wealth value, spending some percentage to mitigate those may be intelligent. Dual passports and foreign holdings are often involved.
m00dy 4y ago
If someone is promising a high yield above the market rates, just ask where this yield comes from
- raverbashing 4y ago
  This is the Economy 101 lesson that many don't know (or pretend they don't) The only ones that can "promise" a yield are sellers of titles for a fixed period. Anything else is an estimate at best
- antisthenes 4y ago
  Usually it's the risk premium. Which makes sense for these ponzi schemes. Exorbitant returns - extremely high probability of ending up at the bottom of the pyramid.
  - MrMan 4y ago
    risk premium arises from supply and demand in markets typically with some kind of quoting system. free money out of nowhere isnt really "risk premium" in that sense.
    - antisthenes 4y ago
      I am not familiar with the specifics of their business model, but the definition of risk premium allows for multiple types of risk. A company being unable to meet its original obligations due to a bad business model is a type of financial risk that falls under this definition. > risk premium arises from supply and demand in markets typically with some kind of quoting system. Risk premium arises any time there exists an investment that's riskier than the safest possible investment (whatever it may be). No other conditions are necessary.
- nikanj 4y ago
  From the line that goes up
m00dy 4y ago
I also think we should let Luna die. https://www.worldofcrypto.io/blog/we-should-let-luna-die https://www.worldofcrypto.io/blog/we-should-let-luna-die
DantesKite 4y ago
They just raised $3 million last month too. I assume they might need some more. https://blog.stablegains.com/we-raised-3-million-and-are-hiring-across-the-board-60e3f599f503 https://blog.stablegains.com/we-raised-3-million-and-are-hir...
- devoutsalsa 4y ago
  Hopefully they didn't park the investors' money in Anchor Protocol!
  - nrmitchi 4y ago
    Tbh they very well may have. Didn’t think same kind of shit happen in the BTC crazy circa 2017?
    - xur17 4y ago
      It sounds like they were going all in with their customers' money, so it kind of makes sense for them to deposit investor money in UST as well. In the case of a depeg, they are screwed (since all of their customer money is gone) regardless of where they placed their capital. Might as well take full advantage..
      - SilasX 4y ago
        Aren't there regs about where you can store investors' unused money?
pharmakom 4y ago
YC has made some questionable bets in the last few years. Quantity over quality?
- truthwhisperer 4y ago
  yes I think good remark. This will hurt their brand for sure. Quick money making as it seems
- curiousgal 4y ago
  I stopped following their investments in like 2015 after they funded a startup that makes vegan condoms, whatever that is.
  - mschuster91 4y ago
    I didn't know either so I went on a quick Google - turns out, conventional latex condoms are soaked in casein to make them smoother [1], and said casein is also responsible for the sour-ish odor. Vegan condoms and sex toys are made without casein or other animal-based byproducts. Fun fact: a lot [2] of consumer goods use animal-based byproducts either as technical agents (e.g. beer that's being filtered through fish bladders) or as outright ingredients (shampoo, perfume, ...). [1] https://www.greencondom.club/vegan https://www.greencondom.club/vegan [2] https://www.onegreenplanet.org/animalsandnature/products-you-didnt-know-contain-animal-ingredients/ https://www.onegreenplanet.org/animalsandnature/products-you...
okwubodu 4y ago
The last few weeks (months, really) has highlighted an incredible lack of discernment in the VC-verse wrt the thing we call web3. Now. I have no experience doing what YC does and don’t claim to, but the jig here was so transparent that the smallest drop of “street smart” should’ve been enough to set off some alarms. We’re approaching a point where being passed over for “culture fit” is a compliment. Hopefully the embarrassment is enough to expand the founder vetting checkboxes.
- oefrha 4y ago
  If they’re unlucky they lose $500k, which is nothing. If they’re lucky they get a Coinbase. Why not.
  - okwubodu 4y ago
    $42 million of real people’s money was lost. That’s a net negative to society whether or not it shows up on a balance sheet.
    - ramraj07 4y ago
      It wasn’t lost, it went from one crypto idiot to another crypto idiot.
      - capitol_ 4y ago
        No, it's even worse, it went from one idiot to a scam artist that will use the money to build more scams.
      - koolba 4y ago
        Arguably the second one is not an idiot. Or at least not as much.
    - monkey_monkey 4y ago
      Sure but as long as they (the VC) are shielded from liability, it's not their problem. Society is something other folk can worry about. And if things get really bad, then a quick essay on lessons learnt, we should all move on, etc.
Asparagirl 4y ago
They’re just one of several shiny fintech apps/websites running the same scam, a modern two-and-twenty on a ponzi — but with really nice UI. Alice (alice.co / @alice_finance) is another prominent one that may have lost customer funds, which was also using the Anchor protocol. It’s unclear how much they lost, but it’s interesting that Do Kwon’s name is still an actual logo listed on their home page. And Vertex Protocol (vertexprotocol.com / @vertex_protocol) recently raised $8.5m to launch a trading platform based on the Anchor protocol, but because their Phase 1 beta had just closed and the open launch was not planned until this summer, it looks like they may have just barely dodged the bullet? What I’m really curious about are the new and (of course) unregulated “insurance” products meant to cover catastrophic crypto depegs, as happened to Terra/Luna. Unslashed (https://app.unslashed.finance/cover https://app.unslashed.finance/cover) is supposed to kick in after fourteen days, I believe. We’re not quite there yet, it’s barely a week so far. But I’m sure with this kind of implied loss reserves, it’ll be fine… https://mobile.twitter.com/CurveFinance/status/1416392630754238465 https://mobile.twitter.com/CurveFinance/status/1416392630754...
- josu 4y ago
  I publicly called out LUNA/UST on Twitter a few times a few months before the collapse [0] [1]. Just stating this so it's clear that I don't have any interest defending them. That being said, calling these platforms "ponzis" isn't correct, the most you can say is that they were front ends for a ponzi. It would be like setting up a front-end to receive investments, and then depositing the money with Madoff. I'm not saying that it is a legitimate business, just not a ponzi. And I'm not defending these companies either, a very light DD [2] made it obvious that the LUNA-UST mechanism was broken and the collapse was inevitable. It's really messed up that they put clients' money at risk, and that they lost it. I also think that YC is somewhat responsible for this. What makes the situation even worse is that the collapse didn't happen from one day to the next, they actually had time to pull the money out at a 0.5%-5% loss, but they still decided to wait and see if it would repeg. [0] https://twitter.com/josusanmartin/status/1478185473499615233 https://twitter.com/josusanmartin/status/1478185473499615233 [1] https://twitter.com/josusanmartin/status/1478188494463848448 https://twitter.com/josusanmartin/status/1478188494463848448 [2] This DD took me less than 1 hour: https://twitter.com/josusanmartin/status/1524323026942242818 https://twitter.com/josusanmartin/status/1524323026942242818
nootropicat 4y ago
The whole idea was to become a middleman to a ponzi scheme and charge a performance fee. They described what they are doing in their documentation, but the core ethical problem here is that the only users that would use their service are those incapable of understanding how UST/Terra worked, because anyone capable of understanding would just deposit funds directly and get higher APR for the same risk! Extremely predatory. UST fooled many ...not very bright people who genuinely didn't realize it's a ponzi scheme - but obviously smart and technically proficient founders of Stablegains' have no such excuse. Zero room for doubt - they fully knew it's certain to collapse eventually, banking on their legal terms to protect them from liability while privately profiting as long as it works. Founders of Stablegains belong in prison and everything they own should be confiscated and divided among victims. Sadly they are probably safe - as knowing the inevitability of collapse they must have felt their legalese to be ironclad.
- Ekaros 4y ago
  I just wish the liability could be extended to enablers that is funders... Sometimes I think companies should not really be limited liability...
  - nootropicat 4y ago
    I think investors probably didn't know. High safe defi yield existed for most of 2020 and 2021 - during that time it would be legit. It's possible that's how it happened - first plan based on safe yield that disappeared (exactly because it was high and safe), but instead of closing down founders decided to become middlemen to a ponzi.
    - nrmitchi 4y ago
      I feel like “safe” needs a giant asterisk applied to it in this sentence. Just because something didn’t explode previously, doesn’t mean it was safe until now.
      - nootropicat 4y ago
0x20cowboy 4y ago
Just have to use the ol’ “I forgot.” https://m.youtube.com/watch?v=zXmQW_aqBks https://m.youtube.com/watch?v=zXmQW_aqBks Works every time.
davidgerard 4y ago
Remembering the early days of bitcoin, and Pirateat40's Bitcoin Savings and Trust ponzi (BTCST) from 2012. That also had a pile of feeder ponzis hanging off the side. They'd claim to be completely uncorrelated with BTCST, but just put their coins into BTCST. Crypto has now gone beyond replaying old scams from the history of finance, and is now just replaying old scams from the history of crypto. But now they're VC-funded.
- quickthrower2 4y ago
  I like the name “Feeder Ponzi” though! Has a sort of legit-not-legit sound to it.
  - davidgerard 4y ago
    Madoff's ponzi had a pile of feeder funds too. Feeder funds are a sorta-legit strategy, but ...
predg 4y ago
Seems that YC have been investing in quite a few predatory companies in recent years. Lambda School and Inflow are two that come to mind.
- thot_experiment 4y ago
  Yeah the days of being accepted into YC meaning anything are long gone, they're investing in pretty much anything these days. On the whole I think YC is a lite version of a rugpull though I don't really mean that as some sort of scathing criticism, it's par for the course. That's just the way most businesses operate, you build up trust and provide loads of value when you're small. Then, as you expand you take advantage of the trust-inertia to exploit the gap between how much value you are perceived to provide and how much value you actually have to provide to keep getting money (or equity) from people and giving it to yourself.
xuki 4y ago
https://i.imgur.com/qz4EeQS.jpg https://i.imgur.com/qz4EeQS.jpg - This is (was?) their ads "15% interest. No surprises."
- deleted 4y ago
  [deleted]
- quickthrower2 4y ago
  Technically "15% interest. No surprises." is correct
  - arcturus17 4y ago
    No surprises in it being complete bullshit?
- braingenious 4y ago
  15% interest? No! Surprises!
  - rchaud 4y ago
    The most egregious case of false advertising since Homer's lawsuit against the "all you can eat" seafood restaurant.
    - optimalsolver 4y ago
      Fortunately, his lawyer had experience from the case against the makers of "The Neverending Story".
    - zhoujianfu 4y ago
      "Do these sound like the actions of a man who had had ALL HE COULD EAT?!"
- ww520 4y ago
  Not surprisingly 15% of 0 is still 0.
whatever1 4y ago
Oh so now they ask for external intervention to their DeFi. I really cannot believe how we let for so long that many charlatans drive clueless people to financial ruin.
Mizza 4y ago
The name "StableGains" sounded exactly like "SafeMoon", a heavily advertised pump-and-dump shitcoin that, unsurprisingly, was not safe, and did not go to the moon. Free money with no risk sure sounds appealing though, just don't think too hard about it.
- chii 4y ago
  to use an oxymoronic name like "safe moon" is a great tell that it's a scam. A coin cannot be safe - that is, riskless and stable in value -, but also go to the moon! So they probably looked up the thesaurus and found "Stable" and "Gain" as synonyms...
- drekipus 4y ago
  This is really the crux of the issue How many people get duped into thinking there's such a thing as "unlimited gain" and "rewards without risks" Like what, people are just going to give you money without you doing anything? It would be largely beneficial to everyone, if we were to provide some basic economic/financial/"how money works" lessons to everyone through the use of schools and public education..
  - JoeAltmaier 4y ago
    Um, how all the super-rich got that way. Interest, dividends, annuities, heck any financial instruments at all. But sure, lets make it a moral good that we don't (get to) have money too. The 1% deserve all the money!
    - bombcar 4y ago
      Almost all of not all of the current super rich got that way by owning shares in their company. Tesla, Amazon, etc.
      - JoeAltmaier 4y ago
        Then there's the bank owners etc. They got rich when banks were deregulated and then began skimming from every transaction. You do that for long enough, you have all the money.
nivertech 4y ago
1. HYIP (High Yield Investment Programs) is an old scam. Rebranding it as DeFi doesn't change this. https://www.investor.gov/protect-your-investments/fraud/types-fraud/high-yield-investment-programs https://www.investor.gov/protect-your-investments/fraud/type... 2. Algorithmic "stablecoins" don't work, in the same way as perpetuum mobile doesn't work. You think you're inventing a perpetuum mobile, but you're building a Rube Goldberg's machine instead ;) 3. Every algorithmic "stablecoin" can be traced to 2 papers published in 2014: Hayek Money and Robert Sams' Seigniorage Shares https://twitter.com/nivertech/status/1073248331726553090 https://twitter.com/nivertech/status/1073248331726553090
- dropnerd 4y ago
  algo stablecoins work fine when they're overcollateralized, like dai. the industry keeps chasing undercollateralized algo stablecoins because of capital efficiency. jon wu explains to laura shin, worth a watch: https://twitter.com/laurashin/status/1525505300219961344 https://twitter.com/laurashin/status/1525505300219961344
  - nivertech 4y ago
    > algo stablecoins work fine when they're overcollateralized, like dai. DAI/MakerDAO isn't an algorithmic "stablecoin", it's an unregistered SEF (Swap Execution Facility) which should be regulated by the CFTC in the US, and similar agencies in other parts of the world. The only reason DAI didn't broke the USD peg during the "crypto" bear market, is because OG's cost base of ETH was zero to 30 cents, and their objective was to save MakerDAO, rather than make a profit on their CDPs. > the industry keeps chasing undercollateralized algo stablecoins because of capital efficiency. Isn't it obvious? ;) The energy industry also chased perpetuum mobile because of the fuel efficiency, so what? IMO there are ways to design a capital-efficient low-volatility digital assets (not algorithmic "stablecoins" per say - they're impossible), but they will most-likely be illegal in any developed country, as they will be an exotic derivative instruments. From the JTBD PoV, the job of the "stablecoins" is to hedge your exposure to the volatile "crypto" assets. The only way to do this is either to exchange them to a less volatile assets, or to enter into a contract with somebody else willing to take the risk in exchange for something.
tphyahoo2 4y ago
a16z companies next? https://standardcrypto.wordpress.com/2020/04/30/a16z-struggles-to-earn-passing-grade-in-crypto-fund-ii-learn-by-doing-classroom-project/comment-page-1/ https://standardcrypto.wordpress.com/2020/04/30/a16z-struggl...
mwattsun 4y ago
I'm gobsmacked at the amount of money people have entrusted to experimental beta software whose behavior at scale is unknown. It's fascinating to watch these systems spin out of control in a new kind of flash crash https://en.wikipedia.org/wiki/Flash_crash https://en.wikipedia.org/wiki/Flash_crash
isoprophlex 4y ago
Jesus H. Christ they're called "Stablegains", how could anyone think this is anything besides a crypto bro ponzi scam op?!
- nivertech 4y ago
  They're Stablegains, not Stableprincipal ;)
- robonerd 4y ago
  It's like a used car salesman who claims his name is 'Honest' Freddy. You'd think such flagrantly shameless self-aggrandizement would make everybody turn and run, but evidently it works on some people.
underwater 4y ago
Their tagline is "Earn higher interest on your cash". And the website says "You can now earn up to 15% APY interest on your cash with Stablegains. This is 30x higher than in your traditional bank*." I don't see how they can justify making such a claim. Once you put the money into their system the cash is converted to UST. No one is earning interest on their cash. Comparing themselves to a bank, and using terminology like "deposit" and "withdrawl" are sketchy as hell. All those imply that the capital is not at risk, which it obviously was.
- realusername 4y ago
  When you're advertising higher yearly interests than Madoff, that should raise some warnings into people's head.
locallost 4y ago
I always wonder with such things where the line between dishonest advertising and fraud is. To me its fraud, but a lot of people take a different view. E.g. in a lot of countries in Europe, banks were offering loans where the debt was registered in Swiss Francs. They advertised it as really safe, but it wasn't and they knew it. But in some countries the banks got into issues with authorities and in others it was viewed as the risk that the borrower should've known. I'm never really sure where to draw the line.
roxaaaane 4y ago
I think what's more interesting than the semantics of ponzis, this is a YC company ?!
pjc50 4y ago
From their website, is this really a sufficient disclaimer? > Stablegains is not a bank and the assets stored in your Stablegains account are not insured by any private or governmental insurance plan (FDIC or SIPC), nor are they covered by any compensation scheme (including FSCS). There is a range of safeguards in place to help secure your deposits, however holding and depositing stablecoins with Stablegains and third party lending platforms still carries significant risk. Please carefully read our Terms of Use and Risk disclosures in our Learning Center before making a deposit. Any deposit with Stablegains and third party lending platforms is entirely your responsibility. You understand that your principal is at risk. > Stablegains does not provide any financial, legal, or tax advice, nor should this website be viewed as an offer or inducement to make any financial decisions. The interest rate refers to the level of current daily interest payments, is not guaranteed for any specific period and may be modified in the future depending on the conditions in the lending markets used. At least you know you can report them to the cops, which you should do if you have been a victim of fraud: > Stablegains, Inc. is registered as a Money Services Business (MSB) number 31000211740426 with the US Financial Crimes Enforcement Network (FinCEN).
- deleted 4y ago
  [deleted]
exdsq 4y ago
Honestly how was this ever a YC company? Some of their Web3 plays I totally get - things like building dev infrastructure as a SaaS helps a ton when it comes to blockchain development. But products on Web3 seem to risky, especially DeFi ones with no track record.
xtracto 4y ago
This made me think... back in 2012, a startup called Kueski (now a very successful BNPL in Mexico) applied for YC (twice in 2 years). The founders were rejected, even though the business model was sound and the economics were pretty well laid out (I know the CEO and ge is a really meticulous person). The reason YC gave for the rejection was that Mexico was an unknown market, and they felt lending in there was too risky for them. Makes me wonder what was the decision logic to accept this Stablegains, against that background it doesn't make any sense. Was YC aware of the ponzi nature of this thing and decided to dip in? It just makes no sense.
- xnorswap 4y ago
  YC invested in Coinbase in 2012. I suspect the success of that investment gave them (false?) confidence in their ability to navigate the crypto landscape in 2022.
- daveed 4y ago
  FWIW YC has changed over the years, both with different partners and a changing startup ecosystem. Geo-based feedback 10 years ago probably isn't relevant now.
- phphphphp 4y ago
  I don’t mean this as a slight against YC, but the world has changed and YC is mostly just a brand now. YC was unique in that 15 years ago the narrative around raising money was radically different: YC was the only game in town that understood the amount of potential being ignored by traditional investors, and so they had a smorgasbord of excellent opportunities to pick from. The world is very different now, YC demonstrated that their model worked and nowadays everyone has learned from YC… …that means there’s no longer this vastly underserved market of brilliant teams that just need a little capital and a little faith and a little guidance, which is the market YC excelled in, nowadays everybody understands that and any competent team could raise money with their eyes closed. Nowadays getting into YC remains perceived as prestigious but it’s not, really, compared to what it once was: the cycle sizes are huge and the quality has plummeted. I don’t believe YC, as an organisation, is actively intending to benefit from ponzi-like companies, but YCs thesis (bet on a good team and they will do good things) is very vulnerable to a good team working on a god awful idea that has serious fallout when the market conditions have normalised insane behaviour: a decade ago, StableGains wouldn’t have made it into YC because no YC team would have thought it was sensible. So, while YC should be held accountable, it’s ultimately a market problem, we’re in a market that values these awful predatory financial propositions, hence almost every prestigious investment organisation has some exposure to this sort of company (it’s just not blown up for all of them, yet, but soon come).
hbbio 4y ago
It's sad that such projects got into YC, when it was easy to tell that Luna/Terra was a ponzi. I looked at it earlier, and stayed away due to these red flags. Blockchains themselves have a bright future though as a technology which is truly fantastic and keeps innovating rapidly. Right now, with all the negative press, it may be easy to dismiss it, but it will come back as a trustless computing platform that the world needs. I am biased, as we chose to build in that domain but proud that we're developing actual new tech for smart contracts... YC, you can still accept us in the next batch :)
- whatever1 4y ago
  Trustless computing might have a future, trustless money no.
  - hbbio 4y ago
    Money is a use case that attracts scams indeed, and will be harder to get right. But we're building for a future where apps like Calendly can be smart contracts. With new blockchains* that have a very low tx fee (imagine $0.00001 / tx), I clearly see many services migrate to smart contracts. They won't require any subscription, existing data is never at risk of being wiped out, and hopefully we will keep optimizing app and data size enough to get back to apps that just work, without the cruft or bad incentives. We're here to make that happen! * New research papers suggest we can reach > 100k tx / sec with great safety and liveness properties
    - webmaven 4y ago
      > But we're building for a future where apps like Calendly can be smart contracts. […] > They won't require any subscription, existing data is never at risk of being wiped out, and hopefully we will […] get back to apps that just work, without the cruft or bad incentives. We're here to make that happen! I fail to see what the advantages are of having a calendar app/service implemented as a DAO. I can see the advantages of federation (ala email or the fediverse), and I can see the advantages of a "local first" approach, but what does a web3/DAO bring to the party? The trustless use-cases I can imagine are quite sociopathic, like selling appointment slots with price discrimination, or reserving a slot for a smaller fee, or allowing resale of appointments or reservations, or remaking any and all of the above transactions into auctions. Turning every little thing into a multi-sided market sounds exhausting and pathological. You can apply this sort of thinking to other existing app/site categories, like wikis. No longer do you have to endure edit wars, you can just bid to finalize your preferred version! Unless 50% of the editors veto your edit, in which case you forfeit your bid. Oh joy, now a bad faith actor can't just pay one wiki editor under the table to slant the content your way, you have to bribe a whole bunch to prevail. Yes, that would be a huge improvement. I don't know, perhaps I am lacking in imagination, but the negative social consequences of monetizing relationships and social transactions are pretty well known and I'm not really seeing a commensurate benefit: https://rady.ucsd.edu/faculty/directory/gneezy/pub/docs/fine.pdf https://rady.ucsd.edu/faculty/directory/gneezy/pub/docs/fine...
pseudolus 4y ago
Are they actually being sued? The letter refers to a litigation hold - essentially demanding that all relevant materials be conserved. The letter further references "potential litigation" not pending litigation.
jwmoz 4y ago
I never committed anything to defi due to the smart contract risk. The thought of having 100s of thousands locked on a Defi app with risk of hack is too much. You can see how much hacks there have been on rekt.news
pluc 4y ago
Crypto is a scam If you're defending crypto, you are a scammer. It's so simple.
- weberer 4y ago
  Some would extend this statement to all fiat currency.
  - humbleMouse 4y ago
  - x86_64Ubuntu 4y ago
    Fiat has mountains of protections and controls compared to crypto. They aren't remotely comparable.
drawingthesun 4y ago
Surely the fact that they are changing the details about their terms/agreements now after they have lost it all - will cause a longer jail sentence for them? This has gone from reckless to actual purposeful deceit and manipulation
gzer0 4y ago
> stablegain is keeping the post de-peg UST airdrop for themselves and anyone who tries to withdraw to get the airdrop is forced to sign a waiver saying they're not liable for any losses. Is this even enforceable? This is a contract agreement under duress. You can't absolve yourself just by saying these things; their terms do not supersede the law of the land. Elements of economic duress * - Wrongful or improper threat. * - No reasonable alternative. * - The other party caused the financial distress.
gzer0 4y ago
Quick comparison between archive.org March 27th snapshot 27 March 2022 > There are no lock-up periods. Withdraw your funds any time and keep the interest you earned. 18 May 2022 > There are no long-term lock-up periods. These guys are going under. [1] https://web.archive.org/web/20220308041252/https://www.stablegains.com/ https://web.archive.org/web/20220308041252/https://www.stabl...
- xtracto 4y ago
  I wonder what Jordan Gillespie, Kasey Cook and Kai Pedersen think now of the Stablegains product and service.
- bhouston 4y ago
  They didn't plan for a black swam. I think that they only kept so much money around to do redemptions (fractional reserve) assuming that there wouldn't be a run on the bank. But then when a run on the bank happened, they were screwed as they had been locking up the funds.
  - krsrhe 4y ago
  - dropnerd 4y ago
    startups usually dont have enough resources for a black swan. but this collapse was entirely predictable- many analysts pointed it out and were mocked by kwon and the self-described LUNAtics. founders either didn't do enough diligence, or didn't care.
    - kgwgk 4y ago
      Also startup’s black swan effects are usually of the form “our service is no more” rather than “your savings are no more”.
confidantlake 4y ago
Did YC know Stablegains was a fraud and invest anyway, betting on that it would likely work? Or was YC just extremely negligent in not recognizing it?
Geee 4y ago
"If you don't know where the yield comes from, you are the yield."
Proven 4y ago
deleted 4y ago
[deleted]
farmerstan 4y ago
Are we talking jail time? Does what they did constitute fraud?
eis 4y ago
Another negative story about a YC company which has risen to the front page of HN and then seems to be getting a lot of pressure to get ranked down. It has more points and is fresher then a handful of other stories on the frontpage but ranks lower and is falling quickly. And when mentioned in the past, the reason often is the invisible anti-flamewar or similar features. What is it this time? Elon needs to buy HN and open source the algorithm! /s
- uncomputation 4y ago
  Came here to say just this, this ranks higher than anything on the front page currently and is not very old. Usually HN algorithm allows a slow fall for high vote posts like this. This one’s quick descent right off the top 100 seems human-made.
- dang 4y ago
  No moderator touched this post. Moreover, it spent 10 hours on the front page. Your comment makes me think you might be under a misimpression of how HN moderation works, so here's a refresher. We moderate HN less, not more, when YC or a YC startup is the story. That doesn't mean we don't moderate at all (though in the case of this particular thread, we literally did not moderate it at all—any perception that made it seem that we did was completely mistaken). This is literally the #1 rule of HN moderation. It's the first thing that PG drilled into me when he trained me to do this job years ago. I hadn't even had a chance to grab a chair yet. https://hn.algolia.com/?dateRange=all&page=0&prefix=false&query=by%3Adang%20moderate%20less%20%22not%20more%22%20yc&sort=byDate&type=comment https://hn.algolia.com/?dateRange=all&page=0&prefix=false&qu... The reason we have this rule is that the good will of the community is literally the only value HN has, and that is not worth risking.
- nrmitchi 4y ago
  > anti-flamewar This is a story about a company 1) in the crypto space, that 2) lost all of it's users money, and 3) used misleading disclaimers (and potentially trying to change them after the fact) It has already devolved in multiple threads to discussion about what is-and-is-not technically a ponzi scheme (vs other forms of scams/fraud). This whole thing is a recipe for a giant flame war.
ipnon 4y ago
This all could have been prevented with a limit order sell at 0.99 UST per USD.
- Ruphin 4y ago
  There is always some fluctuation in the market, and it is impossible to tell if after hitting .99 it will go back to 1.0 or drop to 0. Sure, you mitigate risk of the asset going to 0 with this strategy, but at the same time you bleed 1% of your investment every time the market has a small shock that brings it below 0.99 So what about 0.98 then, or any arbitrary value between 1 and 0? The lower you go, the lower the chance it will bounce back to 1, but the higher your loss if it does. Ultimately it all balances out and each of these bets is just another gamble with no outsized return.
- BoiledCabbage 4y ago
  Oh your right, they almost invented perpetual motion, but forgot to add this one doodad. If they add they doodad they will have succeeded in inventing it and surely we'll all get great gains. /s The entire process is fundamentally flawed. No adjustment will fix a faulty premise. Please stop pushing faulty thinking like this.
  - ipnon 4y ago
    I suppose you could argue Terra has some flaw that can't be mitigated, but surely someone merely holding Terra could close their position at anytime. What is the fault in this line of reasoning?
nullc 4y ago
More of these domino effect collapses are coming. It's a good time to remind people to bring their coins home if they're in custody anywhere.
vanshlanger 4y ago
Can someone explain what they did?
nathanaldensr 4y ago
LOL. Keep trusting crypto bros, everyone. They're different con men this time, we swear!
soared 4y ago
Better link: https://stablegains.zendesk.com/hc/en-us/articles/6104159088785-UST-Depeg-What-s-happening-right-now-and-what-are-the-options https://stablegains.zendesk.com/hc/en-us/articles/6104159088... I don’t know anything about stablegains but this reads like they just take money and put it into UST, so users lost 80% of their funds with the depeg. “This is something all users signed up for” -‘stable’gains

653 points by donsupreme 4y ago

I imagine (and hope) those 5k where mostly crypto bros who knew what they were getting into. Who else expects 15% returns from a "safe" investment?

moistly 4y ago
I have a (ex-) friend who falls for every MLM scam that comes along. Naturally, she put everything into crypto. She would undoubtedly think she could make 15% with no risk. I believe a huge number of the MLM gullible are the dupes involved in these scams.
fortran77 4y ago
YCombinator's board? https://www.ycombinator.com/companies/stablegains https://www.ycombinator.com/companies/stablegains
- ed 4y ago
  What is YCombinator’s “board”? Re their directory profile: every public YC company has one, even my defunct 11 year old startup —- it’s definitely not an active endorsement.
  - fortran77 4y ago
    The people at YCombinator who decide who to endorse, fund, and provide guidance to.
devoutsalsa 4y ago
I didn't invest because it was only 15% gains. Sad, but true. I actually read them their material & saw it was based on Anchor Protocol. When I saw that it was based on UST, and I couldn't figure how UST was backed by anything I understood, I opted out. One of the few times in crypto where I felt "do you won research" paid off for me.
- vkou 4y ago
  > I didn't invest because it was only 15% gains I'm confused. Were you looking for a cryptocoin that was promising 1,500% gains? Anyone promising a safe 15% return in a world where your savings account earns 0.15% interest is trying to rob you.
  - renonce 4y ago
    It's unfair to compare it against a savings account. Even 1-year treasury bills would give you around 2% interest. It's just that banks are not willing to offer that premium to you.
  - negzero 4y ago
    Given you could get ~20% on anchor, why would you invest in something with lower return with no a priori reason to believe the returns are safer?
    - vkou 4y ago
      If a 20% better ponzi is better than a 15% one, again, I ask, why not a 1,500% one? There's new shitcoins born every day, promising these kinds of returns.
      - negzero 4y ago
        There are almost definitely a priori reasons to think a 1500% one is much riskier. 20% is in the realm of possibility considering you could get ~15% yields from crypto.com, there were also some powerful players with deep pockets funding anchor paying the difference, and that there was almost 20bn$ TVL. Stablegains had nothing going for it, in fact it had all of the risk with none of the reward. 1500% APYs are usually attached to LPs carrying huge risks of impermanent loss rather than stablecoin staking and are usually very transient in that they evaporate within hours. FWIW I disagree with Anchor being termed a ponzi.
      - deleted 4y ago
        [deleted]
wickoff 4y ago
Crypto bros would forgo the middleman and get the 20% yield instead.
puranjay 4y ago
As a recovering crypto bro, none of my other friends have been impacted by this entire UST/Luna meltdown at all Why? Because crypto bros are too degen to be okay with 15% yield lol
- dropnerd 4y ago
  right, crypto nerds are swinging for multiple x, if not 100x or 1000x
mdip 4y ago
You would certainly think so ... I did. But I'm sorry to say that you are strongly overestimating the general population here. My friends know I'm the local crypto-geek[0] so Bitcoin and other cryptocurrencies and tokens are brought up to me all the time by people who's knowledge of what any of it is begins and ends with "Last year X coin was $7.00 and this year it's $100.00, and all of the other ones have had gains like nothing else I can invest in." I can think of at least 6 members of my extended family who are presently invested in cryptocurrency trading (many just say "Bitcoin" and don't actually have any) who are -- in every way -- technologically obliviously ignorant[1]. Half of them, however, are not otherwise uneducated people (one guy is a very well paid VP at a company everyone in my state has heard of and has an MBA from a major university ... he's just not in finance or tech). They're not thinking "well, 15% APY is insane/impossible to provide over the short term/impossible to ever guarantee unless they've invented a time machine or are breaking the law." They're looking at the percentage gains on Bitcoin or Ethereum (depending on when you acquired it, of course -- Lord knows it's taken a hit lately) and thinking "15% sounds easy for a company to pull off in this space." Everyone in my family who invested in some crypto used some company to hold their crypto. Almost all of them used services/companies that had enough of a strong scent of "scam" that I would have dismissed them without further research. Some used more mainstream crypto-sort-of-banks. Sort-of-banks because none of the companies that my family members chose for crypto trading were FDIC or otherwise insured in a manner that made sure the numbers they see on their page could be turned into dollars in a bank account somewhere else. The surprising thing is that none of them had any idea this was the case! A few family members thought they were buying Bitcoin because they were investing in "cryptocurrency" and it turned out they were buying some strange token running on the Ethereum network. I'll grant it's a small sample size, but in every way it's consistent ... it's a "gold rush" kind of frenzy filled, unfortunately, with a lot of fraudsters riding the wave of news around the crazy gains of crypto. The thing that scares me the most is that a few of my family members[2] have done very well trading crypto (4x/5x/10x their yearly salary). Some lost a little, the others gained a little. The ones that did well aren't treating it like a short-term gamble, even watching the prices drop ... it's like they're holding on to the stock of a company that they deeply believe in except ... there's no company. [0] I don't invest, I did mine Ethereum a while back/spent most of it and made a small profit but did it mostly to learn how the miner worked and how to write CUDA software. I worked SecDev for a couple of years at a global telecom and I enjoy the technology behind it all. [1] One of them -- not elderly -- called for help reconnecting to his 4G modem (their only internet service). The instruction "reboot your computer" was not understood. I fell back to "turn it off, count to ten, turn it on again." Nope, right back where he left it. I had not seen his computer setup so I could provide no more instruction. When I arrived I discovered he was "rebooting" ... the monitor. [2] Four, precisely, two who are distantly related through a great aunt and are working together, but are among the most irresponsible people with money I've ever known, and two who are quite good with most things financial. Edit: Realized my tone was harsh in a few places and there was one inaccuracy.

Kritik_Agrawal 4y ago

VCs and Incubators providing support to such "startups" (I would really not like to call these entities legitimate startups) causes them to look credible to the public in general and that's why so many people get duped. I am honestly skeptical about this whole Web3 thing, and while a connection has really managed to make my opinion a little less extreme, I think most of us agree that this kind of "startups" cause more harm than good

jshappy23 4y ago

Well alice let everyone know they are using anchor, and allowed people to transfer UST out of the wallet. Stablegain pretended to do more sophesitcated defi and misled customers that they were using USDC as the main coin, and money was made from lending USDC to overcollaterlized positions in bluechip tokens(BTC, ETH)

frontman1988 4y ago

Time to buy monero, visit plastic surgeon and disappear to El Salvador.

wolongong942 4y ago
Except the whole thing about living off crypto in El Salvador was just a grift all along.

deleted 4y ago

[deleted]

dmitrygr 4y ago

YC invested in what was clearly an outright fraud? Or did they pivot do hard that nobody noticed?

VerminOctopus1 4y ago
I mean, the company name alone should tell you all you need to know.
devoutsalsa 4y ago
A poor decision does not equal fraud.
- dmitrygr 4y ago
  Promising a guaranteed 15% return is fraud. There is no place in reality where you can * guarantee * that kind of return.
  - devoutsalsa 4y ago
    They explain the risks on their website: https://stablegains.zendesk.com/hc/en-us/articles/4402687751569-Is-there-any-backing-security-on-my-deposit- https://stablegains.zendesk.com/hc/en-us/articles/4402687751...
    - ihalip 4y ago
      If there are risks, how can the 15% be guaranteed?
      - devoutsalsa 4y ago
        Where do they say it's guaranteed?
      - cinntaile 4y ago
        "You can now earn up to 15% APY interest on your cash with Stablegains. This is 30x higher than in your traditional bank*." Up to

devoutsalsa 4y ago

Here's a Twitter thread from @stablegains that clearly highlights the implosion as it's happening => USD.https://twitter.com/stablegains/status/1523874916206059525 https://twitter.com/stablegains/status/1523874916206059525

KingOfCoders 4y ago

"Stablegains makes earning with DeFi simple and safe for consumers and businesses alike."

chii 4y ago
There's no such thing as a free lunch, and you cannot earn above inflation returns without taking on risk. Even money market funds, which is what stablecoins are similar to for fiat currencies, are not without risk.
- Ekaros 4y ago
  Can you even earn below inflation without risks? Actually you can't even keep your money/wealth without risks...
  - flaviut 4y ago
    TIPS and I Bonds
    - Ekaros 4y ago
      [flagged]
      - Qub3d 4y ago
        At this point in your hypothetical, if we're still talking about the US dollar, you'll have a lot more to worry about than generating a return on your investment. If you think this is a serious potential outcome, then I suggest you forget about investing all together and instead start learning subsistence farming practices. Or you could buy Swiss bonds?
      - bombcar 4y ago
        Since the US can print money to pay its debts you technically can’t “lose” in dollar-denominated bonds. But you can still lose to inflation, collapse of the US, etc. The term “risk-free rate” is used as a baseline in comparing other financial assets; there are still risks involved and for those above a certain wealth value, spending some percentage to mitigate those may be intelligent. Dual passports and foreign holdings are often involved.

m00dy 4y ago

If someone is promising a high yield above the market rates, just ask where this yield comes from

raverbashing 4y ago
This is the Economy 101 lesson that many don't know (or pretend they don't) The only ones that can "promise" a yield are sellers of titles for a fixed period. Anything else is an estimate at best
antisthenes 4y ago
Usually it's the risk premium. Which makes sense for these ponzi schemes. Exorbitant returns - extremely high probability of ending up at the bottom of the pyramid.
- MrMan 4y ago
  risk premium arises from supply and demand in markets typically with some kind of quoting system. free money out of nowhere isnt really "risk premium" in that sense.
  - antisthenes 4y ago
    I am not familiar with the specifics of their business model, but the definition of risk premium allows for multiple types of risk. A company being unable to meet its original obligations due to a bad business model is a type of financial risk that falls under this definition. > risk premium arises from supply and demand in markets typically with some kind of quoting system. Risk premium arises any time there exists an investment that's riskier than the safest possible investment (whatever it may be). No other conditions are necessary.
nikanj 4y ago
From the line that goes up

m00dy 4y ago

I also think we should let Luna die. https://www.worldofcrypto.io/blog/we-should-let-luna-die https://www.worldofcrypto.io/blog/we-should-let-luna-die

DantesKite 4y ago

They just raised $3 million last month too. I assume they might need some more. https://blog.stablegains.com/we-raised-3-million-and-are-hiring-across-the-board-60e3f599f503 https://blog.stablegains.com/we-raised-3-million-and-are-hir...

devoutsalsa 4y ago
Hopefully they didn't park the investors' money in Anchor Protocol!
- nrmitchi 4y ago
  Tbh they very well may have. Didn’t think same kind of shit happen in the BTC crazy circa 2017?
  - xur17 4y ago
    It sounds like they were going all in with their customers' money, so it kind of makes sense for them to deposit investor money in UST as well. In the case of a depeg, they are screwed (since all of their customer money is gone) regardless of where they placed their capital. Might as well take full advantage..
    - SilasX 4y ago
      Aren't there regs about where you can store investors' unused money?

pharmakom 4y ago

YC has made some questionable bets in the last few years. Quantity over quality?

truthwhisperer 4y ago
yes I think good remark. This will hurt their brand for sure. Quick money making as it seems
curiousgal 4y ago
I stopped following their investments in like 2015 after they funded a startup that makes vegan condoms, whatever that is.
- mschuster91 4y ago
  I didn't know either so I went on a quick Google - turns out, conventional latex condoms are soaked in casein to make them smoother [1], and said casein is also responsible for the sour-ish odor. Vegan condoms and sex toys are made without casein or other animal-based byproducts. Fun fact: a lot [2] of consumer goods use animal-based byproducts either as technical agents (e.g. beer that's being filtered through fish bladders) or as outright ingredients (shampoo, perfume, ...). [1] https://www.greencondom.club/vegan https://www.greencondom.club/vegan [2] https://www.onegreenplanet.org/animalsandnature/products-you-didnt-know-contain-animal-ingredients/ https://www.onegreenplanet.org/animalsandnature/products-you...

okwubodu 4y ago

The last few weeks (months, really) has highlighted an incredible lack of discernment in the VC-verse wrt the thing we call web3. Now. I have no experience doing what YC does and don’t claim to, but the jig here was so transparent that the smallest drop of “street smart” should’ve been enough to set off some alarms. We’re approaching a point where being passed over for “culture fit” is a compliment. Hopefully the embarrassment is enough to expand the founder vetting checkboxes.

oefrha 4y ago
If they’re unlucky they lose $500k, which is nothing. If they’re lucky they get a Coinbase. Why not.
- okwubodu 4y ago
  $42 million of real people’s money was lost. That’s a net negative to society whether or not it shows up on a balance sheet.
  - ramraj07 4y ago
    It wasn’t lost, it went from one crypto idiot to another crypto idiot.
    - capitol_ 4y ago
      No, it's even worse, it went from one idiot to a scam artist that will use the money to build more scams.
    - koolba 4y ago
      Arguably the second one is not an idiot. Or at least not as much.
  - monkey_monkey 4y ago
    Sure but as long as they (the VC) are shielded from liability, it's not their problem. Society is something other folk can worry about. And if things get really bad, then a quick essay on lessons learnt, we should all move on, etc.

Asparagirl 4y ago

They’re just one of several shiny fintech apps/websites running the same scam, a modern two-and-twenty on a ponzi — but with really nice UI. Alice (alice.co / @alice_finance) is another prominent one that may have lost customer funds, which was also using the Anchor protocol. It’s unclear how much they lost, but it’s interesting that Do Kwon’s name is still an actual logo listed on their home page. And Vertex Protocol (vertexprotocol.com / @vertex_protocol) recently raised $8.5m to launch a trading platform based on the Anchor protocol, but because their Phase 1 beta had just closed and the open launch was not planned until this summer, it looks like they may have just barely dodged the bullet? What I’m really curious about are the new and (of course) unregulated “insurance” products meant to cover catastrophic crypto depegs, as happened to Terra/Luna. Unslashed (https://app.unslashed.finance/cover https://app.unslashed.finance/cover) is supposed to kick in after fourteen days, I believe. We’re not quite there yet, it’s barely a week so far. But I’m sure with this kind of implied loss reserves, it’ll be fine… https://mobile.twitter.com/CurveFinance/status/1416392630754238465 https://mobile.twitter.com/CurveFinance/status/1416392630754...

josu 4y ago
I publicly called out LUNA/UST on Twitter a few times a few months before the collapse [0] [1]. Just stating this so it's clear that I don't have any interest defending them. That being said, calling these platforms "ponzis" isn't correct, the most you can say is that they were front ends for a ponzi. It would be like setting up a front-end to receive investments, and then depositing the money with Madoff. I'm not saying that it is a legitimate business, just not a ponzi. And I'm not defending these companies either, a very light DD [2] made it obvious that the LUNA-UST mechanism was broken and the collapse was inevitable. It's really messed up that they put clients' money at risk, and that they lost it. I also think that YC is somewhat responsible for this. What makes the situation even worse is that the collapse didn't happen from one day to the next, they actually had time to pull the money out at a 0.5%-5% loss, but they still decided to wait and see if it would repeg. [0] https://twitter.com/josusanmartin/status/1478185473499615233 https://twitter.com/josusanmartin/status/1478185473499615233 [1] https://twitter.com/josusanmartin/status/1478188494463848448 https://twitter.com/josusanmartin/status/1478188494463848448 [2] This DD took me less than 1 hour: https://twitter.com/josusanmartin/status/1524323026942242818 https://twitter.com/josusanmartin/status/1524323026942242818

nootropicat 4y ago

The whole idea was to become a middleman to a ponzi scheme and charge a performance fee. They described what they are doing in their documentation, but the core ethical problem here is that the only users that would use their service are those incapable of understanding how UST/Terra worked, because anyone capable of understanding would just deposit funds directly and get higher APR for the same risk! Extremely predatory. UST fooled many ...not very bright people who genuinely didn't realize it's a ponzi scheme - but obviously smart and technically proficient founders of Stablegains' have no such excuse. Zero room for doubt - they fully knew it's certain to collapse eventually, banking on their legal terms to protect them from liability while privately profiting as long as it works. Founders of Stablegains belong in prison and everything they own should be confiscated and divided among victims. Sadly they are probably safe - as knowing the inevitability of collapse they must have felt their legalese to be ironclad.

Ekaros 4y ago
I just wish the liability could be extended to enablers that is funders... Sometimes I think companies should not really be limited liability...
- nootropicat 4y ago
  I think investors probably didn't know. High safe defi yield existed for most of 2020 and 2021 - during that time it would be legit. It's possible that's how it happened - first plan based on safe yield that disappeared (exactly because it was high and safe), but instead of closing down founders decided to become middlemen to a ponzi.
  - nrmitchi 4y ago
    I feel like “safe” needs a giant asterisk applied to it in this sentence. Just because something didn’t explode previously, doesn’t mean it was safe until now.
    - nootropicat 4y ago

0x20cowboy 4y ago

Just have to use the ol’ “I forgot.” https://m.youtube.com/watch?v=zXmQW_aqBks https://m.youtube.com/watch?v=zXmQW_aqBks Works every time.

davidgerard 4y ago

Remembering the early days of bitcoin, and Pirateat40's Bitcoin Savings and Trust ponzi (BTCST) from 2012. That also had a pile of feeder ponzis hanging off the side. They'd claim to be completely uncorrelated with BTCST, but just put their coins into BTCST. Crypto has now gone beyond replaying old scams from the history of finance, and is now just replaying old scams from the history of crypto. But now they're VC-funded.

quickthrower2 4y ago
I like the name “Feeder Ponzi” though! Has a sort of legit-not-legit sound to it.
- davidgerard 4y ago
  Madoff's ponzi had a pile of feeder funds too. Feeder funds are a sorta-legit strategy, but ...

predg 4y ago

Seems that YC have been investing in quite a few predatory companies in recent years. Lambda School and Inflow are two that come to mind.

thot_experiment 4y ago
Yeah the days of being accepted into YC meaning anything are long gone, they're investing in pretty much anything these days. On the whole I think YC is a lite version of a rugpull though I don't really mean that as some sort of scathing criticism, it's par for the course. That's just the way most businesses operate, you build up trust and provide loads of value when you're small. Then, as you expand you take advantage of the trust-inertia to exploit the gap between how much value you are perceived to provide and how much value you actually have to provide to keep getting money (or equity) from people and giving it to yourself.

xuki 4y ago

https://i.imgur.com/qz4EeQS.jpg https://i.imgur.com/qz4EeQS.jpg - This is (was?) their ads "15% interest. No surprises."

deleted 4y ago
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quickthrower2 4y ago
Technically "15% interest. No surprises." is correct
- arcturus17 4y ago
  No surprises in it being complete bullshit?
braingenious 4y ago
15% interest? No! Surprises!
- rchaud 4y ago
  The most egregious case of false advertising since Homer's lawsuit against the "all you can eat" seafood restaurant.
  - optimalsolver 4y ago
    Fortunately, his lawyer had experience from the case against the makers of "The Neverending Story".
  - zhoujianfu 4y ago
    "Do these sound like the actions of a man who had had ALL HE COULD EAT?!"
ww520 4y ago
Not surprisingly 15% of 0 is still 0.

whatever1 4y ago

Oh so now they ask for external intervention to their DeFi. I really cannot believe how we let for so long that many charlatans drive clueless people to financial ruin.

Mizza 4y ago

The name "StableGains" sounded exactly like "SafeMoon", a heavily advertised pump-and-dump shitcoin that, unsurprisingly, was not safe, and did not go to the moon. Free money with no risk sure sounds appealing though, just don't think too hard about it.

chii 4y ago
to use an oxymoronic name like "safe moon" is a great tell that it's a scam. A coin cannot be safe - that is, riskless and stable in value -, but also go to the moon! So they probably looked up the thesaurus and found "Stable" and "Gain" as synonyms...
drekipus 4y ago
This is really the crux of the issue How many people get duped into thinking there's such a thing as "unlimited gain" and "rewards without risks" Like what, people are just going to give you money without you doing anything? It would be largely beneficial to everyone, if we were to provide some basic economic/financial/"how money works" lessons to everyone through the use of schools and public education..
- JoeAltmaier 4y ago
  Um, how all the super-rich got that way. Interest, dividends, annuities, heck any financial instruments at all. But sure, lets make it a moral good that we don't (get to) have money too. The 1% deserve all the money!
  - bombcar 4y ago
    Almost all of not all of the current super rich got that way by owning shares in their company. Tesla, Amazon, etc.
    - JoeAltmaier 4y ago
      Then there's the bank owners etc. They got rich when banks were deregulated and then began skimming from every transaction. You do that for long enough, you have all the money.

nivertech 4y ago

1. HYIP (High Yield Investment Programs) is an old scam. Rebranding it as DeFi doesn't change this. https://www.investor.gov/protect-your-investments/fraud/types-fraud/high-yield-investment-programs https://www.investor.gov/protect-your-investments/fraud/type... 2. Algorithmic "stablecoins" don't work, in the same way as perpetuum mobile doesn't work. You think you're inventing a perpetuum mobile, but you're building a Rube Goldberg's machine instead ;) 3. Every algorithmic "stablecoin" can be traced to 2 papers published in 2014: Hayek Money and Robert Sams' Seigniorage Shares https://twitter.com/nivertech/status/1073248331726553090 https://twitter.com/nivertech/status/1073248331726553090

dropnerd 4y ago
algo stablecoins work fine when they're overcollateralized, like dai. the industry keeps chasing undercollateralized algo stablecoins because of capital efficiency. jon wu explains to laura shin, worth a watch: https://twitter.com/laurashin/status/1525505300219961344 https://twitter.com/laurashin/status/1525505300219961344
- nivertech 4y ago
  > algo stablecoins work fine when they're overcollateralized, like dai. DAI/MakerDAO isn't an algorithmic "stablecoin", it's an unregistered SEF (Swap Execution Facility) which should be regulated by the CFTC in the US, and similar agencies in other parts of the world. The only reason DAI didn't broke the USD peg during the "crypto" bear market, is because OG's cost base of ETH was zero to 30 cents, and their objective was to save MakerDAO, rather than make a profit on their CDPs. > the industry keeps chasing undercollateralized algo stablecoins because of capital efficiency. Isn't it obvious? ;) The energy industry also chased perpetuum mobile because of the fuel efficiency, so what? IMO there are ways to design a capital-efficient low-volatility digital assets (not algorithmic "stablecoins" per say - they're impossible), but they will most-likely be illegal in any developed country, as they will be an exotic derivative instruments. From the JTBD PoV, the job of the "stablecoins" is to hedge your exposure to the volatile "crypto" assets. The only way to do this is either to exchange them to a less volatile assets, or to enter into a contract with somebody else willing to take the risk in exchange for something.

tphyahoo2 4y ago

a16z companies next? https://standardcrypto.wordpress.com/2020/04/30/a16z-struggles-to-earn-passing-grade-in-crypto-fund-ii-learn-by-doing-classroom-project/comment-page-1/ https://standardcrypto.wordpress.com/2020/04/30/a16z-struggl...

mwattsun 4y ago

I'm gobsmacked at the amount of money people have entrusted to experimental beta software whose behavior at scale is unknown. It's fascinating to watch these systems spin out of control in a new kind of flash crash https://en.wikipedia.org/wiki/Flash_crash https://en.wikipedia.org/wiki/Flash_crash

isoprophlex 4y ago

Jesus H. Christ they're called "Stablegains", how could anyone think this is anything besides a crypto bro ponzi scam op?!

nivertech 4y ago
They're Stablegains, not Stableprincipal ;)
robonerd 4y ago
It's like a used car salesman who claims his name is 'Honest' Freddy. You'd think such flagrantly shameless self-aggrandizement would make everybody turn and run, but evidently it works on some people.

underwater 4y ago

Their tagline is "Earn higher interest on your cash". And the website says "You can now earn up to 15% APY interest on your cash with Stablegains. This is 30x higher than in your traditional bank*." I don't see how they can justify making such a claim. Once you put the money into their system the cash is converted to UST. No one is earning interest on their cash. Comparing themselves to a bank, and using terminology like "deposit" and "withdrawl" are sketchy as hell. All those imply that the capital is not at risk, which it obviously was.

realusername 4y ago
When you're advertising higher yearly interests than Madoff, that should raise some warnings into people's head.

locallost 4y ago

I always wonder with such things where the line between dishonest advertising and fraud is. To me its fraud, but a lot of people take a different view. E.g. in a lot of countries in Europe, banks were offering loans where the debt was registered in Swiss Francs. They advertised it as really safe, but it wasn't and they knew it. But in some countries the banks got into issues with authorities and in others it was viewed as the risk that the borrower should've known. I'm never really sure where to draw the line.

roxaaaane 4y ago

I think what's more interesting than the semantics of ponzis, this is a YC company ?!

pjc50 4y ago

From their website, is this really a sufficient disclaimer? > Stablegains is not a bank and the assets stored in your Stablegains account are not insured by any private or governmental insurance plan (FDIC or SIPC), nor are they covered by any compensation scheme (including FSCS). There is a range of safeguards in place to help secure your deposits, however holding and depositing stablecoins with Stablegains and third party lending platforms still carries significant risk. Please carefully read our Terms of Use and Risk disclosures in our Learning Center before making a deposit. Any deposit with Stablegains and third party lending platforms is entirely your responsibility. You understand that your principal is at risk. > Stablegains does not provide any financial, legal, or tax advice, nor should this website be viewed as an offer or inducement to make any financial decisions. The interest rate refers to the level of current daily interest payments, is not guaranteed for any specific period and may be modified in the future depending on the conditions in the lending markets used. At least you know you can report them to the cops, which you should do if you have been a victim of fraud: > Stablegains, Inc. is registered as a Money Services Business (MSB) number 31000211740426 with the US Financial Crimes Enforcement Network (FinCEN).

deleted 4y ago
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exdsq 4y ago

Honestly how was this ever a YC company? Some of their Web3 plays I totally get - things like building dev infrastructure as a SaaS helps a ton when it comes to blockchain development. But products on Web3 seem to risky, especially DeFi ones with no track record.

xtracto 4y ago

This made me think... back in 2012, a startup called Kueski (now a very successful BNPL in Mexico) applied for YC (twice in 2 years). The founders were rejected, even though the business model was sound and the economics were pretty well laid out (I know the CEO and ge is a really meticulous person). The reason YC gave for the rejection was that Mexico was an unknown market, and they felt lending in there was too risky for them. Makes me wonder what was the decision logic to accept this Stablegains, against that background it doesn't make any sense. Was YC aware of the ponzi nature of this thing and decided to dip in? It just makes no sense.

xnorswap 4y ago
YC invested in Coinbase in 2012. I suspect the success of that investment gave them (false?) confidence in their ability to navigate the crypto landscape in 2022.
daveed 4y ago
FWIW YC has changed over the years, both with different partners and a changing startup ecosystem. Geo-based feedback 10 years ago probably isn't relevant now.
phphphphp 4y ago
I don’t mean this as a slight against YC, but the world has changed and YC is mostly just a brand now. YC was unique in that 15 years ago the narrative around raising money was radically different: YC was the only game in town that understood the amount of potential being ignored by traditional investors, and so they had a smorgasbord of excellent opportunities to pick from. The world is very different now, YC demonstrated that their model worked and nowadays everyone has learned from YC… …that means there’s no longer this vastly underserved market of brilliant teams that just need a little capital and a little faith and a little guidance, which is the market YC excelled in, nowadays everybody understands that and any competent team could raise money with their eyes closed. Nowadays getting into YC remains perceived as prestigious but it’s not, really, compared to what it once was: the cycle sizes are huge and the quality has plummeted. I don’t believe YC, as an organisation, is actively intending to benefit from ponzi-like companies, but YCs thesis (bet on a good team and they will do good things) is very vulnerable to a good team working on a god awful idea that has serious fallout when the market conditions have normalised insane behaviour: a decade ago, StableGains wouldn’t have made it into YC because no YC team would have thought it was sensible. So, while YC should be held accountable, it’s ultimately a market problem, we’re in a market that values these awful predatory financial propositions, hence almost every prestigious investment organisation has some exposure to this sort of company (it’s just not blown up for all of them, yet, but soon come).

hbbio 4y ago

It's sad that such projects got into YC, when it was easy to tell that Luna/Terra was a ponzi. I looked at it earlier, and stayed away due to these red flags. Blockchains themselves have a bright future though as a technology which is truly fantastic and keeps innovating rapidly. Right now, with all the negative press, it may be easy to dismiss it, but it will come back as a trustless computing platform that the world needs. I am biased, as we chose to build in that domain but proud that we're developing actual new tech for smart contracts... YC, you can still accept us in the next batch :)

whatever1 4y ago
Trustless computing might have a future, trustless money no.
- hbbio 4y ago
  Money is a use case that attracts scams indeed, and will be harder to get right. But we're building for a future where apps like Calendly can be smart contracts. With new blockchains* that have a very low tx fee (imagine $0.00001 / tx), I clearly see many services migrate to smart contracts. They won't require any subscription, existing data is never at risk of being wiped out, and hopefully we will keep optimizing app and data size enough to get back to apps that just work, without the cruft or bad incentives. We're here to make that happen! * New research papers suggest we can reach > 100k tx / sec with great safety and liveness properties
  - webmaven 4y ago
    > But we're building for a future where apps like Calendly can be smart contracts. […] > They won't require any subscription, existing data is never at risk of being wiped out, and hopefully we will […] get back to apps that just work, without the cruft or bad incentives. We're here to make that happen! I fail to see what the advantages are of having a calendar app/service implemented as a DAO. I can see the advantages of federation (ala email or the fediverse), and I can see the advantages of a "local first" approach, but what does a web3/DAO bring to the party? The trustless use-cases I can imagine are quite sociopathic, like selling appointment slots with price discrimination, or reserving a slot for a smaller fee, or allowing resale of appointments or reservations, or remaking any and all of the above transactions into auctions. Turning every little thing into a multi-sided market sounds exhausting and pathological. You can apply this sort of thinking to other existing app/site categories, like wikis. No longer do you have to endure edit wars, you can just bid to finalize your preferred version! Unless 50% of the editors veto your edit, in which case you forfeit your bid. Oh joy, now a bad faith actor can't just pay one wiki editor under the table to slant the content your way, you have to bribe a whole bunch to prevail. Yes, that would be a huge improvement. I don't know, perhaps I am lacking in imagination, but the negative social consequences of monetizing relationships and social transactions are pretty well known and I'm not really seeing a commensurate benefit: https://rady.ucsd.edu/faculty/directory/gneezy/pub/docs/fine.pdf https://rady.ucsd.edu/faculty/directory/gneezy/pub/docs/fine...

pseudolus 4y ago

Are they actually being sued? The letter refers to a litigation hold - essentially demanding that all relevant materials be conserved. The letter further references "potential litigation" not pending litigation.

jwmoz 4y ago

I never committed anything to defi due to the smart contract risk. The thought of having 100s of thousands locked on a Defi app with risk of hack is too much. You can see how much hacks there have been on rekt.news

pluc 4y ago

Crypto is a scam If you're defending crypto, you are a scammer. It's so simple.

weberer 4y ago
Some would extend this statement to all fiat currency.
- humbleMouse 4y ago
- x86_64Ubuntu 4y ago
  Fiat has mountains of protections and controls compared to crypto. They aren't remotely comparable.

drawingthesun 4y ago

Surely the fact that they are changing the details about their terms/agreements now after they have lost it all - will cause a longer jail sentence for them? This has gone from reckless to actual purposeful deceit and manipulation

gzer0 4y ago

> stablegain is keeping the post de-peg UST airdrop for themselves and anyone who tries to withdraw to get the airdrop is forced to sign a waiver saying they're not liable for any losses. Is this even enforceable? This is a contract agreement under duress. You can't absolve yourself just by saying these things; their terms do not supersede the law of the land. Elements of economic duress * - Wrongful or improper threat. * - No reasonable alternative. * - The other party caused the financial distress.

gzer0 4y ago

Quick comparison between archive.org March 27th snapshot 27 March 2022 > There are no lock-up periods. Withdraw your funds any time and keep the interest you earned. 18 May 2022 > There are no long-term lock-up periods. These guys are going under. [1] https://web.archive.org/web/20220308041252/https://www.stablegains.com/ https://web.archive.org/web/20220308041252/https://www.stabl...

xtracto 4y ago
I wonder what Jordan Gillespie, Kasey Cook and Kai Pedersen think now of the Stablegains product and service.
bhouston 4y ago
They didn't plan for a black swam. I think that they only kept so much money around to do redemptions (fractional reserve) assuming that there wouldn't be a run on the bank. But then when a run on the bank happened, they were screwed as they had been locking up the funds.
- krsrhe 4y ago
- dropnerd 4y ago
  startups usually dont have enough resources for a black swan. but this collapse was entirely predictable- many analysts pointed it out and were mocked by kwon and the self-described LUNAtics. founders either didn't do enough diligence, or didn't care.
  - kgwgk 4y ago
    Also startup’s black swan effects are usually of the form “our service is no more” rather than “your savings are no more”.

confidantlake 4y ago

Did YC know Stablegains was a fraud and invest anyway, betting on that it would likely work? Or was YC just extremely negligent in not recognizing it?

Geee 4y ago

"If you don't know where the yield comes from, you are the yield."

Proven 4y ago

deleted 4y ago

[deleted]

farmerstan 4y ago

Are we talking jail time? Does what they did constitute fraud?

eis 4y ago

Another negative story about a YC company which has risen to the front page of HN and then seems to be getting a lot of pressure to get ranked down. It has more points and is fresher then a handful of other stories on the frontpage but ranks lower and is falling quickly. And when mentioned in the past, the reason often is the invisible anti-flamewar or similar features. What is it this time? Elon needs to buy HN and open source the algorithm! /s

uncomputation 4y ago
Came here to say just this, this ranks higher than anything on the front page currently and is not very old. Usually HN algorithm allows a slow fall for high vote posts like this. This one’s quick descent right off the top 100 seems human-made.
dang 4y ago
No moderator touched this post. Moreover, it spent 10 hours on the front page. Your comment makes me think you might be under a misimpression of how HN moderation works, so here's a refresher. We moderate HN less, not more, when YC or a YC startup is the story. That doesn't mean we don't moderate at all (though in the case of this particular thread, we literally did not moderate it at all—any perception that made it seem that we did was completely mistaken). This is literally the #1 rule of HN moderation. It's the first thing that PG drilled into me when he trained me to do this job years ago. I hadn't even had a chance to grab a chair yet. https://hn.algolia.com/?dateRange=all&page=0&prefix=false&query=by%3Adang%20moderate%20less%20%22not%20more%22%20yc&sort=byDate&type=comment https://hn.algolia.com/?dateRange=all&page=0&prefix=false&qu... The reason we have this rule is that the good will of the community is literally the only value HN has, and that is not worth risking.
nrmitchi 4y ago
> anti-flamewar This is a story about a company 1) in the crypto space, that 2) lost all of it's users money, and 3) used misleading disclaimers (and potentially trying to change them after the fact) It has already devolved in multiple threads to discussion about what is-and-is-not technically a ponzi scheme (vs other forms of scams/fraud). This whole thing is a recipe for a giant flame war.

ipnon 4y ago

This all could have been prevented with a limit order sell at 0.99 UST per USD.

Ruphin 4y ago
There is always some fluctuation in the market, and it is impossible to tell if after hitting .99 it will go back to 1.0 or drop to 0. Sure, you mitigate risk of the asset going to 0 with this strategy, but at the same time you bleed 1% of your investment every time the market has a small shock that brings it below 0.99 So what about 0.98 then, or any arbitrary value between 1 and 0? The lower you go, the lower the chance it will bounce back to 1, but the higher your loss if it does. Ultimately it all balances out and each of these bets is just another gamble with no outsized return.
BoiledCabbage 4y ago
Oh your right, they almost invented perpetual motion, but forgot to add this one doodad. If they add they doodad they will have succeeded in inventing it and surely we'll all get great gains. /s The entire process is fundamentally flawed. No adjustment will fix a faulty premise. Please stop pushing faulty thinking like this.
- ipnon 4y ago
  I suppose you could argue Terra has some flaw that can't be mitigated, but surely someone merely holding Terra could close their position at anytime. What is the fault in this line of reasoning?

nullc 4y ago

More of these domino effect collapses are coming. It's a good time to remind people to bring their coins home if they're in custody anywhere.

vanshlanger 4y ago

Can someone explain what they did?

nathanaldensr 4y ago

LOL. Keep trusting crypto bros, everyone. They're different con men this time, we swear!

soared 4y ago

Better link: https://stablegains.zendesk.com/hc/en-us/articles/6104159088785-UST-Depeg-What-s-happening-right-now-and-what-are-the-options https://stablegains.zendesk.com/hc/en-us/articles/6104159088... I don’t know anything about stablegains but this reads like they just take money and put it into UST, so users lost 80% of their funds with the depeg. “This is something all users signed up for” -‘stable’gains