Three Arrows and Celsius fall causes massive sell-offs in Defi

Crypto-assets face a drop in prices as speculations of Three Arrows Capital's insolvency rise in the market

By Shashank Bhardwaj

Image: Shutterstock

Singapore-based crypto venture firm Three Arrows Capital, founded by classmates Su Zhu and Kyle Davies, has triggered a lot of risk-averse headlines in the last few days, causing the entire crypto market to fall with it. Three Arrows Capital is one of the world's largest crypto hedge funds. The decentralised finance (DeFi) ecosystem is facing a rough time due to the Three Arrows Capital (3AC) and Celsius liquidation rumours. 3AC is attempting to stay afloat after a crypto website was reported to be insolvent.

As rumours of 3AC's insolvency persist, trading firm 8 Blocks Capital has requested that platforms holding funds owned by 3AC freeze the assets. According to Michael Saylor, CEO of MicroStrategy, an American business intelligence company, Bitcoin (BTC) and the Lightning Network can solve many of the DeFi ecosystem's problems. MakerDAO decided to remove Aave (AAVE) from its direct deposit module as a precaution in case Celsius folds and the price of staked Ether falls (stETH).

Online speculation about 3AC failing to meet a margin call arose after the company began moving assets around this week to top up funds on decentralised finance platforms such as Aave in order to avoid potential liquidations as the price of Ether (ETH) fell this week. According to unconfirmed reports, 3AC faced liquidations totalling hundreds of millions of dollars from multiple positions.

According to Danny Yuan, the head of trading at 8Blocks Capital, 3AC “ghosted everyone” in response to margin calls. Other companies were forced to sell assets, sending crypto prices even lower.

Zhu of Three Arrows Capital (3AC) has put out a cryptic statement on Twitter in response to swirling rumours that the company is battling against insolvency. Despite Zhu's tweet that they are “fully committed to working this out”, the heavy 3AC trouble is one more step ahead in what appears to be the continuous degradation of the crypto market after the Terra fiasco.

The US-based crypto lender BlockFi was one of Three Arrows Capital's lenders who liquidated at least some of the crypto hedge fund's positions. The liquidation was reported to be done by mutual agreement. BlockFi founder and CEO Zac Prince announced that the company has foreclosed on 'a large client that failed to meet its obligations.'

The top 100 DeFi tokens also saw a crash as bears hit them hard. The utilisation rates of DeFi's ending protocol Aave have fallen across nearly all stablecoin borrowings. Most notably, borrowings for Binance USD (BUSD) fell to only 30 percent compared to what they were previously (80 percent in May).

The writer is the founder at yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash

Crypto wallet users are warned as scammers might get active during the potential Ethereum hard fork