Following the death stampede of stabocoin UST and its sister coin LUNA in mid-May, the UST has seen the coin world go from a “currency crisis” to a “banking crisis” and then a new one — this time involving hedge funds.
Three Arrows Capital, one of the largest hedge funds in the cryptocurrency market, may be facing bankruptcy after a large liquidation, hit by the LUNA and UST thunderstorms, according to sources.
Dubai-based Sanjian Capital liquidated about $45 million of stETH, an Ethereum (ETH) that is pledged on The Ethereum beacon chain, on Tuesday, making it The largest seller of tokens in The past week, according to DeFi news platform The Defiant.
Adding to investors’ concerns, sanjian’s liquidations from lending platforms such as Deribit and BlockFi could total as much as $400 million, according to The Block.
If true, three Arrows capital is likely to face bankruptcy soon.
The “Lehman crisis” in the currency circle has spread to hedge funds
In traditional finance, liquidation occurs when a company tries to repay its debts by selling certain assets at a loss.
In DeFi, funds or agreements sell crypto assets to repay their debts.
As one of the largest hedge funds in the cryptocurrency market, Three Arrows capital’s portfolio has included tokens such as Avalanche, Solana, Polkadot and Terra, making it a “top flow” among hedge funds in the coin world that cannot be ignored.
According to media reports, the asset management scale of Sanarrow Capital once reached $10 billion.
However, with Terra now down to almost nothing in the once strong portfolio owned by Three Arrows capital, Solana and Avalanche down 77% and 90% respectively since their respective all-time highs, the VC “top flow” seems to be in trouble.
Subsequently, new tweets from Zhu Su, co-founder of Three Arrows Capital, appeared to confirm these speculations and further raised concerns about potential ripple effects in the crypto lending market.
Zhu Su tweeted on Tuesday evening local time:
Cryptocurrency Market Crash: From ‘Currency Crisis’ to’ Banking Crisis’
Before investors noticed something was wrong with hedge funds, the coin-sphere banks were the first to explode.
The market expects the Fed to continue to aggressively raise interest rates as the US CPI data continues to rise more than expected and repeatedly hit 40-year highs, and the Fed vows to keep inflation down.
Affected by this, the global collective plunge risk assets.
With the days of abundant liquidity gone, cryptocurrency investors are “shivering” and the cryptocurrency market, once riding the wind, is “facing the winter”.
Not only did bitcoin, the largest by market capitalization, continue to fall, but UST, the third largest stabocoin, and its sister coin Luna, suffered a “death stampede” that shocked the market.
The collapse of risky assets has hit the business of cryptocurrency banks and crypto lending giant Celsius.
As Celsius announced a freeze on withdrawals on Monday to prevent a run on deposits, the move sparked fears.
Investors fear that if Celsius is asked to stop operating, there will be a ripple effect on dozens of DeFi projects, cryptocurrencies and other digital assets involved.
Celsius claims to be number one, boasting 1.7 million users.As of May 17, the company had assets worth $11.8 billion.
Investors were also concerned about whether Celsius’s shareholder Tether Limited, publisher of the world’s largest stablecoin Tether, could be dragged down as well.
Tether, after all, is the lehman Brothers of the coin world.
Tether, the largest operator in the $180 billion stabocoin space, plays a key role in facilitating transactions across the cryptocurrency market and also provides a link to the mainstream financial system that amounts to the financial infrastructure of the coin-sphere.
Tether tried to distance itself from Celsius in a blog post on Monday:
While Tether does include an investment in our company as Celsius, it represents only a small percentage of our shareholders’ equity and has no correlation with our own reserves or stability.
Saleuddin of Blockworks said it’s impossible to know exactly how much Tether’s assets are at risk because of the vagueness of Tether’s disclosures.
Is Three Arrows Capital the latest domino to fall in the crypto bear market?
After the “currency crisis” and “banking crisis”, the new crisis in the currency circle spread to hedge funds.
As cryptocurrency trader Moon Overlord pointed out, Celsius has not been the biggest seller of stETH in the past few days.
He said:
Some people think Celsius is the biggest stETH dump, but in fact, Three Arrows capital is.
Three Arrows capital is dumping accounts and seed round investment addresses they own, most of which appear to be to pay off their debts and outstanding borrowings.
In addition, according to DeFi analyst DeFiyst, Three Arrows Capital’s “fire sale” of stETH began after Terra’s UST stabler collapsed in May of this year. He points out:The price of stETH relative to ETH briefly fell to 95 cents in May, and Three Arrows withdrew 127, 000 stETH from Curve, which was then worth $246 million.
They had been trading heavily between AAVE and wstETH before selling began this week.
It is worth noting that stETH should be traded in a 1:1 ratio with ETH, as the derivative token stETH can be exchanged for Ethereum once the mainnet merger occurs.
Since June 9, however, the “peg” ratio has shown signs of slipping, falling as low as 0.89.
Curve’s stETH/ETH ratio fell to 0.93 as of Press time on June 16, and stETH’s market cap has fallen to $4 billion from about $10 billion in early May.
On Tuesday, Sanjian capital withdrew 80,000 stETH from the decentralized lending agreement Aave and exchanged 38,900 stETH (about $45 million) in two transactions at a price difference of 5.6 percent to 5.9 percent, according to Nansen, an on-chain data analysis platform.
According to The Block, three Arrows’ $400 million position has been liquidated.In addition, crypto analyst Onchain Wizard said that another $300 million of Three Arrows’ positions in Aave and Compound are also at risk of liquidation if the market continues to fall.