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.

Read this next

Digital Assets

FINMA-regulated digital asset provider Taurus expands into Germany

This expansion follows recent moves by BaFin to accelerate the licensing of crypto custody services, aiming to boost market confidence. Following this, several new licenses were issued, notably to Commerzbank, making it the first full-service financial institution in Germany to receive a crypto custody license.

Inside View

Stocknet’s Nick Hall defends gamification as trading platform market set to hit $15.34b by 2030

“The growing popularity of gamified trading has the potential to tackle this financial literacy gap. Rather than simply giving users unfettered access to markets and letting them figure things out for themselves, platforms can offer virtual skill games and challenges to help educate traders and prime them for success.”

Inside View

Infographic: Interest rate and FX derivatives are driving rise of OTC derivatives market

These trends suggest a growing and evolving OTC derivatives market, with an increased focus on risk management and regulatory compliance. The rise in clearing rates, along with the increased initial margin requirements, reflects a more cautious approach to risk in the financial services industry.

Market News

Bank of Canada’s Final 2023 Policy Update on the Canadian Dollar and Future Monetary Landscape

The Bank of Canada’s final policy update for 2023, as reported by Bloomberg, had a relatively subdued impact on the performance of the Canadian dollar, especially when compared to the discernible market reactions following prior BoC policy decisions throughout the year.

Inside View

DTCC’s Systemic Risk Barometer Survey found 2024 US Presidential Election as a top risk

U.S. political uncertainty, particularly regarding the 2024 Presidential Election, has emerged as a key risk, with 51% of respondents highlighting it as a major concern. This reflects the potential impact of election outcomes on market conditions and the industry.

Executive Moves

Options Technology promotes Laura McCann to CFO

“Laura’s promotion to CFO is the next stage in our long-term strategy of building a world-class finance team servicing the global business from our Belfast office. Back in 2016, Jon took on the challenge of laying the groundwork for that vision. Laura has been an integral part of the strategy from day one.”

Digital Assets

Thailand’s crypto economy under the spotlight: a report by HashKey Capital

“I’m excited by the rapid expansion of Thailand’s Web3 sector. With over 3 million overall crypto users and 600% growth in the market in recent years, the dynamism in our DeFi and NFT sectors is clearly evident. Thailand is increasingly becoming a hotspot for digital nomads, drawn by our crypto-friendly policies, affordable living costs, vibrant food and beverage culture and diverse cultural landscape.”

Retail FX

Webull Australia offers 5.4% yield on uninvested cash

“US dollar money market funds are heavily regulated, meaning client funds are managed in a safe, reliable and trusted environment, which is of critical importance to us, and continues to remain top-of-mind for our clients.”

Digital Assets

Bybit welcomes Ethena’s USDe, a decentralized stablecoin utilizing delta-hedging staked Ether

“Our collaboration with Ethena Labs represents our commitment to solving some of the biggest challenges in crypto today, not least, the creation of a decentralized stablecoin. The integration of USDe on Bybit expands our stablecoin offerings, providing our users with an array of uncorrelated solutions accessible from our Unified Trading Account.”