Citadel plans to redeem $500 million from Melvin Capital after WallStreetBets face off

Rick Steves

It was the Gamestop trade against Melvin Capital that made a name for the WSB subreddit.

Citadel plans to redeem approximately $500 million of the $2 billion invested in Melvin Capital earlier this year to make up for the investment management company’s exposure to short bets it made in Gamestop (GME) – a favorite target for the WallStreetBets subreddit.

According to the WSJ, it could not determine whether Citadel plans to redeem more money later. Citadel is expected to remain a large investor, the report added.

Gabe Plotkin’s Melvin Capital lost 49% on its investments during the first three months of 2021 despite posting annualized returns of 30% between 2014 and 2020.

In late January 2021, Citadel invested $2 billion and Point72 joined with $750 million in a sensitive time for Gabriel Plotkin’s firm. The whole short-selling fiasco became a cautionary tale for Wall Street to measure their short bets in a more realistic way.

It was the Gamestop trade that made a name for the WSB subreddit. The forum and its leadership rose to such prominence that in May it launched a blockchain-powered app aimed at combating market manipulation in traditional finance.

The step towards blockchain-based finance represents a change of course for the unofficial, hierarchy-free movement of largely pseudonymous participants, whose shared mission is to fight back against corrupt institutions and to end dependence on them altogether.

Earlier this month, WallStreetBets doubled down on its crypto app, further synthesizing DeFi and traditional markets, with the launch of single stock offerings on the WallStreetBets decentralized application (WSB DApp).

Enabled through a strategic partnership with Mirror Protocol, a leading synthetics protocol for on-chain price exposure, WSB DApp users are able to leverage order routing to trade fungible synthetics that track the price of real-world single stocks, effectively making the stock market available on the blockchain.

The DeFi native WSB DApp allows for the elimination of time barriers, allowing for investment and trading 24 hours a day for shares listed on the world’s stock exchanges.

It also promotes the removal of geographic barriers and foreign stock exchange restrictions, enabling investors to have exposure to assets in a global financial marketplace.

The platform combines cryptocurrency and traditional market assets in a non-custodial portfolio, meaning investors maintain full control of their deposited assets and can withdraw them at any time.

This also means the WSB Dapp is not compliant with the Securities and Exchange Commission as was made clear by SEC Chair Gary Gensler last month.

“There are initiatives by a number of platforms to offer crypto tokens or other products that are priced off of the value of securities and operate like derivatives”, said the SEC Chair.

“Make no mistake: It doesn’t matter whether it’s a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities. These platforms — whether in the decentralized or centralized finance space — are implicated by the securities laws and must work within our securities regime.

“If these products are security-based swaps, the other rules I’ve mentioned earlier, such as the trade reporting rules, will apply to them. Then, any offer or sale to retail participants must be registered under the Securities Act of 1933 and effected on a national securities exchange”, he added.

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