Something is wrong with Singapore-based crypto hedge fund Three Arrows Capital, but it’s not yet clear if that means the company is in default, as the rumors circulating in the cryptosphere suggest.
The hedge fund, which launched last year and has an estimated $10 billion under management, has positions in many of crypto’s biggest projects and companies: Bitcoin, ether, Solana, Axe Infinityand BlockFi.
As of Wednesday afternoon, it appeared that Three Arrows Capital, also trading as 3AC, had sold assets including its Lido Staked Ethereum (stETH) worth $40 million. Researchers and analysts on Twitter have said a $264 million Aave loan and a $35 million Compound loan are to be saved from liquidation.
A crypto trader walking by moon overlord shared a screenshot from blockchain data platform Nansen on Twitter showing that wallets linked to Three Arrows Capital were linked to five of the largest transactions over the past week and exchanged at least 30,000 stETH.
People think Celsius is the biggest stETH dumper, but it’s 3AC and it’s not relatively close, they’re throwing at every account and seed round address they have, most look like it will repay their debts and outstanding loans pic.twitter.com/9bZnmTXQzj
Another crypto analyst, onchain assistantestimates that the loan would be liquidated if the price of Ethereum rises to $1,042.
This wallet (designated 3AC on Nansen) has aggressively repaid AAVE debt against its 223,000 ETH / $264 million position to avoid liquidation. On the other hand, with $198 million in loans, and a liquidity threshold of 85%, a -11% move in ETH to $1,042 liquidates ithttps://t.co/y7yJJ0NlMcpic.twitter.com/2S55Rzl9Xc
“It’s not like 3AC is like, ‘Hey, that’s definitely my address,'” said Caleb Sheridan, co-founder of Eden Network decrypt. “But everyone thinks it’s related to 3AC.”
The Eden Network is a protocol used by traders to guarantee the placement of their transaction in a specific block on the Ethereum network. This can be especially valuable for people trying to mint an NFT before supply runs out, arbitrage trade or in this case, being first in line to liquidate what is presumably the Aave and compound collateral from 3AC.
With the sharks circling the two loans waiting for them to be automatically liquidated, there’s never been a worse time to attempt to offload stETH.
Lido Staked Ethereum, which allows people to stake Ethereum and receive an equal amount of stETH in return, traded at a 6% discount. At the time of writing, 1 stETH could be traded for 0.94 ETH curve financing.
If the price of Ethereum falls low enough, the collateral used to secure the loans will be liquidated or sold. And whoever manages to bid on the security first gets a 5% bonus. Simply put, that means they pay, say, $100 million for $105 million worth of ETH.
If that happens, he said, it could be a catch 22 for the highest bidder. They would need to trade ETH for a coin that does not exhibit price volatility, like USDC, and soon if they want to earn a return from trading.
“You have this cascading effect,” Sheridan said, “where suddenly, wherever you liquidate ETH for USDC, you have to do it in a smart way or you risk holding that asset that could keep falling in price.”
If the collateral for these two loans is liquidated, it will also be bad for the lenders. And that includes Celsius, which is already struggling with enough liquidity problems.
At least as a Twitter user degent trading pointed out that 3AC is one of the largest borrowers and clients for crypto lenders. If 3AC goes under, it will send shock waves to the rest of the market and make the current downturn even more hellish.
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