Liquidity crisis emerges DeFi backlash against crypto whale

The market panic caused by the de-anchoring of UST and the return of LUNA to zero in May eventually spread to June along with the depression of the crypto bear market . Another group of crypto-assets stETH and ETH with an “anchoring” relationship changed.

The regular exchange ratio of these two assets is 1:1. Since last week, this balance has been upset.

stETH is an ETH 2.0 pledge certificate launched by DeFi platform Lido. On this platform, users can get 1 stETH pledge certificate token for every 1 ETH they deposit. The two form a 1:1 exchange rate relationship. Since stETH was later widely introduced into the DeFi market, the token can not only be exchanged for ETH on the decentralized exchange (DEX), but also regarded by some decentralized lending platforms as collateral for lending other crypto assets.

At present, on the DEX “Curve” with the largest stETH-ETH trading volume, 1 stETH can only be exchanged for about 0.95 ETH, and stETH has become a discounted version of ETH. With the experience of the UST event, the first thing that crypto users can think of is: someone is selling stETH in large quantities.

The first seller identified was crypto asset market maker Alameda Research, which withdrew nearly 50,000 stETH in a matter of hours on Friday alone. During the same period, the exchange rate of stETH against ETH was decoupled by 5%. But then the agency bought back stETH again.

If this is just a routine operation of market makers based on market conditions, then the two market roles that follow have unconventional actions.

On Monday, Celsius, a centralized crypto asset lending platform, suddenly announced that it would suspend customer withdrawals and transfers. It was found that the platform was a large ETH2.0 pledger, holding at least 409,200 stETH, accounting for 9.69% of the stETH supply. Celsius’ sudden withdrawal of withdrawals makes it a potential sell-off for stETH.

Today, the well-known crypto asset hedge fund Three Arrows Capital was exposed to “liquidation risk”. Although the institution did not explicitly respond to the rumors, the information on the chain shows that the institution is constantly transferring and selling stETH through the addresses it owns. One of its The address still holds 19,614 stETH.

The two crypto whales are being surrounded by crises. They are also deep participants in DeFi. Both parties have put their managed crypto assets into DeFi scenarios on a large scale, including algorithmic stablecoins and lending markets. When the crypto asset market was in a bull market, DeFi Lego was an accelerator for investment income. Now that the bear market has emerged, DeFi has begun to reverse, and the well-funded whales are the first to bear the brunt.

Two encrypted whales have exposed the crisis one after another

If it wasn’t for the de-anchoring of stETH and ETH, people might not immediately notice the dilemma of the whales and the market risks they may bring.

On June 13, the crypto asset lending platform Celsius suddenly announced that it would suspend withdrawals, transactions and transfers between all accounts, citing “extreme market conditions” and the purpose of “stabilizing liquidity…to allow Celsius to Better fulfillment of opt-out obligations to customers”.

Celsius is headquartered in London, UK. Founded in 2017, Celsius is mainly engaged in the deposit and loan business of encrypted assets. It absorbs and stores users’ encrypted assets, and the APY (annual deposit yield) is up to 17%; at the same time, it also supports users to use encrypted assets as collateral, with a minimum of Get a loan in USD stablecoins or even USD for 1% APR.

Celsius suspends user withdrawals, clearly stating that it is for “stabilizing liquidity”. In other words, it is caught in a liquidity crisis, and the current crypto assets available to it are likely to be unable to meet the needs of users to redeem at any time.

Where does this crypto whale, which claims to “own 150,000 BTC” and “provide more than $1 billion in revenue to the community”, has invested its “money”?

After stETH and ETH were de-anchored, it was found that Celsius was one of the huge pledgers of ETH2.0, with 158,176 ETH locked in the Ethereum beacon chain, currently worth $168 million. Although the value is not low, this part of ETH cannot be redeemed at any time, and it needs to wait for the Ethereum 2.0 network to complete the merger before it can be withdrawn. This part of the value is an illiquid asset for Celsius and cannot solve the redemption needs of users.

In addition, a wallet address of Celsius marked by blockchain data analysis service provider Nansen shows that the total value of encrypted assets owned by this address is 916 million US dollars, mainly including stETH, ETH, WBTC, WETH, LINK, COMP, etc., of which only The value of $802,000 is still lying in the wallet, and the rest of the value is used to mortgage on DeFi lending platforms Aave and Compound, lending out various USD stablecoins worth 688 million, including USDC, DAI and USDT.

Liquidity Crisis Emerges, DeFi Backlashes Crypto Whales

Celsius has pledged a large amount of assets to the DeFi lending platform

That is to say, the encrypted assets in the Celsius address are temporarily unable to flow, but it has loaned a large amount of USD stablecoins, and it is likely to use this to solve its redemption problem. However, this method of “removing the east wall to make up the west wall” has greater risks. Once the value of the collateral falls, the lending platform will initiate a liquidation mechanism. If Celsius cannot make up the collateral, it will face the risk of being liquidated.

Of course, this is just a wallet address of Celsius, and the outside world is still unable to know the payment gap of the platform, so it is impossible to judge how big the “mine” is, but the operation of stopping withdrawals has exposed it to a liquidity crisis. The other one that was surrounded by crisis was Three Arrows Capital.

On June 15, the media The Block quoted sources as saying that the total liquidation of Three Arrows Capital on the encrypted asset derivatives trading platform Deribit and the lending platform BlockFi was as high as $400 million, and the institution was processing its lenders and other counterparties. relation.

Soon, ZhuSu, founder of Three Arrows Capital, sent a tweet with vague information, “We are communicating with relevant parties and are committed to solving the problem.” As for the problem being solved, ZhuSu did not make it clear.

This crypto-asset hedge fund established in 2012 and registered in Singapore has begun to expose problems, and the investment targets related to it are appearing abnormal. Starry Night, an NFT fund supported by Three Arrows Capital, has emptied its total of 70 NFT collections on the SuperRare platform, which consumed more than $21 million in the fund.

In addition, the wallet marked as Three Arrows Capital on Nansen has been transferring and selling stETH in the past 2 days. Some analysts believe that Three Arrows Capital’s move is to repay its debt in Aave to avoid its position (about 2.64 223,000 ETH) was liquidated. On-chain data shows that the ETH of Three Arrows Capital is also in a clearing state, with nearly 8,000 ETH being sold.

Both Celsius and Three Arrows Capital are facing a problem similar to “insolvency”. The liquidity of the assets at hand is a symptom, but what is it that pushes them to the brink of danger?

Both giant whales are involved in dangerous thunderstorm project Terra

For market veterans such as crypto whales, the downturn of the bear market is easy to predict, but some unpredictable “thunders” are likely to be buried early.

Take Celsius as an example. In the past 4 years, it has become a unicorn-like presence in the European and American markets of encrypted assets, attracting 1.7 million users. Last year’s B round of financing expanded from $400 million to $750 million. , valued at $3.5 billion. In addition to the lending business, Celsius began to expand into the Bitcoin mining industry, investing between $300 million and $500 million.

However, Celsius has stepped on a lot of pits, and stepped on the DeFi field, its main position for profit.

BadgerDAO was hacked in December last year and lost $120 million in crypto assets, of which more than $50 million came from Celsius, including 2,100 BTC and 151 ETH.

In June last year, Stake Hound, an ETH2.0 staking solution company, lost its private key and lost more than 38,000 ETHs deposited by its customers. The data analysis agency pointed out that 35,000 of the ETH came from Celsius, but it was denied by the company.

These negative events continue to consume customers’ trust in Celsius: Does a so-called professional encryption institution have a complete risk control mechanism? As a result, Terra’s UST and LUNA thunderstorms once again broke the customer’s trust in Celsius.

Following the decoupling of UST, blockchain data analysis agency Nansen pointed out that 7 large crypto wallets withdrew UST liquidity from Anchor (a lending platform on Terra chain) and sold it on Curve (DEX on Ethereum chain), which was the trigger for UST The initial reason for the decoupling, one of these 7 wallets belongs to Celsius.

This means that Celsius has arbitraged in Anchor, but the company’s CEO said “we did not cause the LUNA crash nor benefited from it”, and on-chain data analysts still found evidence that Celsius controlled wallets for at least the past 5 At least 261,000 ETH ($535 million at the time) was sent to Anchor mid-month.

Judging from the results, Celsius’ withdrawal seems to have allowed it to escape from the UST storm, but the institution’s repeated risk-taking style in DeFi has made its users uneasy, and some users have already transferred encrypted assets after the UST storm. Withdrawing from Celsius, panic started to spread, and an unmanageable run could be coming, which may be why Celsius recently shut down customer withdrawals.

The “thunder” of UST and LUNA hit the head of Three Arrows Capital, one of the investors of Terraform Labs, the issuer of this group of sister coins, and led an investment of 500 million in the financing before the project collapsed Dollar. From the analysis of ZhuSu’s actions on its platform after the collapse of LUNA, Three Arrows Capital has a high probability of trying to recover losses from the reconstruction of the project.

After the Terra fork, LUNA’s fork currency LUNC was generated, Three Arrows Capital purchased 10.9 million LUNC with US$559.6 million and pledged them on the node to get rewards, but now this investment has fallen with the plummet of LUNC. That’s down to $660.

Three Arrows Capital’s deficit doesn’t stop there.

On the crypto asset trading platform Bitfinex, Three Arrows Capital is in second place on the list of losers, with a loss of $31 million in May alone. In addition to losing money, some crypto asset traders broke the news that Three Arrows Capital has lending positions on centralized lending platforms including BlockFi, Celsius, and Nexo, and there is a risk of liquidation.

Judging by on-chain traces of multiple wallets belonging to Three Arrows Capital, the agency is also remediating losses.

Since May this year, Three Arrows Capital has transferred a total of 100,000 ETH to the exchange FTX, and it is not ruled out that it is cashing out ETH. In addition, in the past two days, Three Arrows Capital did not hesitate to lose money and began to exchange stETH for USD stable currency in various ways.

Liquidity Crisis Emerges, DeFi Backlashes Crypto Whales

Three Arrows has recently transferred a large amount of stETH

Crypto asset trader MoonOverload analyzed on Twitter that Three Arrows’ move to sell stETH is more like repaying their debt in DeFi lending applications to avoid liquidation.

Whether it is Celsius, which claims to be a “CeFi and DeFi bridge”, or Three Arrows Capital, which invests funds in DeFi on a large scale, the rise of the two giant whales is inseparable from the accelerating role of DeFi in the bull market, or in other words, the bull market amplifies the impact of DeFi on DeFi. The catalytic effect of crypto asset returns, Celsius and Three Arrows Capital have both surfed the bull market with the wind of the trend.

When the bear market came, the amplification effect of DeFi was gradually reflected in the risk. stETH was sold off due to the liquidity crisis of institutional giant whales, and ETH was de-anchored. Improper risk management positions are also involved, not only throwing more and more losses in the loss, but also possibly passing the risk to the wider market.

At present, Celsius has pledged at least 409,200 stETH on Aave. These stETH are still collateral and have not been sold, but there is a risk of liquidation. Because even if Celsius does not sell itself, it cannot prevent other giant whales from selling stETH, such as the difficult Three Arrows Capital. Once stETH triggers liquidation, Celsius’ collateral will be liquidated if it cannot be replenished.

If Celsius chooses to sell stETH in order to restore the withdrawal demand of users, its own giant whale will also trigger the liquidation price, and it will spread the panic, which will lead to a sell-off of stETH, which will lead to a series of liquidations.

The situation faced by Three Arrows is the same. The crypto whales who once benefited from circular arbitrage were caught in a dilemma. DeFi Lego began to attack the whales when the liquidity crisis appeared.

The problem is that there are not a few giant whales like this in the market. Celsius has many competing platforms, including BlockFi, Nexo, etc. Their business models are roughly the same, and they are all CeFi platforms that extract profits from the DeFi market. Translucent The way of application also conceals risks. For example, it is difficult for their users to know which DeFi project their assets have flowed to, whether the smart contract of the project is safe, and whether the liquidity of the platform is normal…

The bear market has just opened, and Three Arrows Capital will not be the only institution involved, and Celsius is by no means the last thunder.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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