The first cold wave in 2022: the liquidation of Ethereum and the defeat of Three Arrows Capital

ETH liquidated

June 18, 2022 is a day destined to go down in the history books in the crypto-asset industry – on this day, both Bitcoin and Ethereum, the leaders of crypto-assets, suffered an unprecedented plunge.

On the day, Ethereum, the second-largest asset in the crypto-asset industry, plunged 7.3% on the day to as low as $1,000, its lowest level since January 2021. It is down nearly 80% from its previous high.

According to Coinglass data, as of 23:00 on June 18, a total of 77,000 accounts in the crypto asset sector were liquidated, with a total amount of $270 million. The collapse of Luna, the insolvency of Celsius, and the de-anchoring of stETH, all kinds of bad news were continuously realized, the market that lost confidence continued to fall, and at the same time, the price of encrypted assets kept hitting new lows.

The large-scale decline of Ethereum and Bitcoin has increased the panic in the market. Investors who have fallen into panic have continued to sell their crypto assets, causing their prices to drop. The drop in price brought about the liquidation of a large number of Ethereum on the chain. According to the data provided by, on June 16 alone, 894 Ethereum accounts were liquidated, and the total amount of liquidated Ethereum was as high as $104,640,734.71.


Figure 1, the number and total value of Ethereum accounts liquidated in the past 30 days, source:

But the ETH liquidation quota on June 16 was still a fraction of the total quota.

According to data, between $1,100 and $1,250, there is a total of nearly $1 billion in on-chain lending and clearing lines, and these lines are mainly composed of Maker, Aave, and Compound.

The liquidation logic of Ethereum is that when the price of the pledged asset drops, causing the value of the pledged asset to be lower than the value of the loaned asset, a certain percentage of the pledged asset will be sold, and the liquidated user will also need to pay a sum of money as punishment.

Taking the famous VC Three Arrows Capital in the crypto asset industry as an example, when the price of Ethereum continued to fall, the addresses of Three Arrows Capital were continuously liquidated, and some addresses were even liquidated as many as 20 times.

The continuous liquidation brought on by the falling price of ethereum has left many accounts with heavy losses. According to the data on eigenphi, the value of the Ethereum pledged by the liquidated head accounts is as high as more than 10 million yuan. Among them, the address with the most serious losses is 0x716034C25D9Fb4b38c837aFe417B7f2b9af3E9AE as an example. This address has undergone 21 liquidations in total, and the loss in the liquidation is as high as more than 67 million US dollars.


Figure 2, List of addresses with the largest liquidated amount, data source:

2022 is the first year that institutions encounter a bear market after entering the market in a group. Under the stimulation of the previous bull market, profit-seeking institutions have chased profits through circular leverage. When the price of the token rises, this operation can undoubtedly bring multiple profits; but if the price of the token falls, the continuous liquidation is inevitable.

Three Arrows Capital’s Leveraged Business Logic

In the pessimism of the entire encrypted asset industry, another extremely heavy news has attracted the attention and discussion of the entire encrypted asset industry-Zhu Su, founder of Three Arrows Capital, said, “We are communicating with relevant parties and are committed to bringing problem solved.”


Figure 3, screenshot of Zhu Su’s tweet

Before Zhu Su’s vague tweet, the news about Three Arrows Capital’s deep asset liquidity crisis and insolvency continued to ferment in the discussion of the entire crypto asset industry—–The experience of Three Arrows Capital is a chain and catastrophic. Because Luna’s projects with a valuation of tens of billions of dollars almost returned to zero, which made Three Arrows hit hard; after that, Three Arrows Capital began to continuously sell stETH in exchange for ETH to repay debts.

To make things worse for Three Arrows Capital, as the price of ETH plummeted, its pledged Ethereum also suffered continuous liquidations.

The logic of using Ethereum leveraged in layers is to first pledge Ethereum to Lido in exchange for the stable token stETH anchored in ETH, and then use stETH to pledge to Aave and other platforms to exchange for stable assets before investing.

Layers of overweight ensure that Three Arrows Capital can invest in various fields at low cost and high leverage. The continuous increase of leverage ensures that extremely rich profits can be obtained under favorable market conditions;

However, since leverage has always been a high-risk and high-reward financial means, once leverage reverses the market cycle, it can only usher in liquidation.

Three Arrows’ Self-Saving

Judging from the chain crisis caused by this wave of bear markets, it is not that Three Arrows Capital has thought about self-help.

One of the most obvious means is that it constantly sells stETH in its hands in exchange for ETH to replenish its margin.

The sell-off of stETH by Three Arrows Capital led to the decoupling of the ratio of stETH and ETH to 1stETH = 0.94ETH;

In addition to this, Three Arrows has withdrawn 127,000 stETH liquidity from Curve.

The self-rescue measures don’t stop there. After Zhu Su tweeted that he was “solving the problem”, Danny, the head of trading at 8BlockCapital, stated that his $1 million in the trading account of Three Arrows Capital was withdrawn;

At the same time, there are multiple DeFi protocols claiming that the whereabouts of their funds deposited on the Three Arrows Capital OTC platform are unknown. These assets are the Treasury management proposal made by Three Arrows Capital after its seed round of financing, which requires these agreements to be governed by the OTC platform owned by Three Arrows Capital.

In return, Three Arrows Capital promised them an annual rate of return of 8%.

However, the entire self-rescue operation had little effect in the sky-high plummeting market of Ethereum.

In a June 17 “Wall Street Journal” article, Three Arrows Capital was considering selling assets for a bailout. Three Arrows has hired legal and financial advisors to help it develop solutions for investors and lenders, its co-founder Kyle Davies said in an interview.

But whether Three Arrows Capital can survive this difficulty is still something that needs to be tested by time.


Luna’s price collapsed, Celsius was insolvent, and Three Arrows Capital was caught in an asset liquidity crisis. They are undoubtedly the victims of the cold winter of the crypto asset industry in 2022. But this may only be the first cold wave in the whole winter, and it is unpredictable whether more VC or crypto asset projects will be affected after this.

This cold winter does not seem to be over, and there may be more victims under the chain reaction of the industry.

Celsius’ insolvency may raise another worrying association – what will happen to Tether, which has invested in Celsius?

The stable token USDT issued by Tether has always been regarded as the general equivalent of the crypto asset industry. So, does the fall of Celsius mean that Tether may be affected?

In this cold winter of the crypto asset industry, is there really such a so-called “Lehman moment”? If it appears, what impact will it have on the crypto asset industry? But another point we always believe is that while many projects and VCs may fall in this bear market, there will still be a day when the crypto-asset industry bottoms out.

Just as the world economy was able to move on after the Great Depression of 1929, the collapse of the Bretton Woods system in 1973, and the Great Recession of 2007. The crypto-asset industry has experienced more than one bear market, but it always rushes back to a new peak.

The industry will always move forward, but the ups and downs will always leave victims. The market is risky and investment needs to be cautious. This principle, which has been mentioned countless times, is still in my ears today. There are countless investors who have paid or are paying for their rash or aggressive capital practices, and today’s UST, Luna, Celsius, and Three Arrows Capital are just another addition to this maxim.

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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