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New Report Reveals Major Source Of Recent Crypto Market Chaos

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Earlier this month, big cryptocurrency trading businesses such as Celsius Network and Three Arrows Capital were over-exposed, according to a new analysis published by the blockchain analytics company Nansen. The report gives some insight into how these firms got over-exposed.

According to Yahoo Finance, Niklas Polk, a research analyst at Nansen and the study’s author, stated that “a lot of the selling pressure originated from the collapse of the Terra.” “Many of these larger corporations turned out to be much riskier players than was anticipated. It seems that a situation where major actors are all located in the same place is not necessarily a positive indicator.”

Drawing a connection to the more than $50 billion collapses of Terra’s LUNA (LUNA1-USD) token and algorithmic stable coin UST (UST-USD) at the beginning of May, the report shows that several prominent crypto players sought their next profit strategy by adding leverage to a high interest yielding derivative of the second largest cryptocurrency ether. Drawing on this connection, the report shows that several prominent crypto players sought their next profit strategy by adding leverage to a high-interest yielding derivative of the second largest cryptocurrency ether (ETH-USD).

The derivative in question is known as staked ether or teeth, and it enabled investors to secure their ether holdings on the Ethereum blockchain in advance of “The Merge,” which refers to the shift of the blockchain from proof-of-stake to proof-of-work. The price of ether experienced a drop of 35 per cent between the end of April and the middle of May. On May 11, more than 600,000 ether-like assets were relocated from Terra and converted into stETH, representing a conversion rate of 98 per cent.

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On the 12th of May, amid this panic, Three Arrows Capital and Celsius withdrew a combined total of $800 million worth of teeth from the cryptocurrency exchange Curve. According to the study, the movements led to a change in mood towards stETH in an environment with very little trading activity; nonetheless, neither company withdrew their stakes in teeth. During the period starting on May 12 and ending on June 18, investors dumped $4 billion worth of stETH holdings in exchange for ether in the face of deteriorating market circumstances, which resulted in ETH itself falling by 31% in a week. According to Coinmarketcap, these withdrawals caused the price of teeth to drop to a level that was as much as 8% lower than the price of ether.

According to the findings of the analysis, even though Seth is not required to trade on a 1:1 basis with ETH, for the vast majority of its existence, Seth has typically been on par with ETH. The difference between the price of teeth and ETH increased. As a result, significant investors who had borrowed against their holdings of teeth on Defi platforms such as Aave began to get margin calls requiring them to deposit further collateral.
According to the report, between June 8 and 9, Celsius withdrew 50,000 stealth tokens pledged as collateral. At the same time, the company used other crypto assets, such as stablecoins, to “either add collateral or repay debt.” “at the end in FTX deposit, most likely indicating an OTC deal.”

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In a short time following that, Celsius locked its customers’ accounts. The firm continues to be one of the leading lenders and borrowers of ether in Defi markets. It maintains a total collateral value of one billion dollars in ether and other crypto derivatives on Defi platforms such as Aave and Compound.

“We cannot see their other positions or how much debt Celsius has, but for the time being, we do not see any teeth positions at risk,” said Polk, adding that the company will need to post more collateral on its positions if the price of teeth has a drawdown of more than 30 per cent. “For the time being, we do not see any teeth positions at risk,” said Polk.
The cryptocurrency lender Celsius Network, which has been silent for more than two weeks and owned $12 billion in client assets as of late April, according to its website, has engaged teams of attorneys as well as consultants with Citigroup, fuelling user worries that the company may soon go bankrupt.

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During this time, the cryptocurrency hedge fund known as Three Arrows Capital has also been remarkably silent. On Wednesday, Reuters reported that the company had entered liquidation. Even though Nansen’s report suggests Three Arrows didn’t get heavily involved in teeth until after Terra’s collapse, the company still suffered a total loss of 6,500 ETH, equivalent to approximately $7.2 million at the current market price, due to the depreciation of teeth. This loss comes on top of ether’s total loss of 50 per cent during the period.

During the events on June 7, the company also borrowed 29,054 stETH from cryptocurrency lender BlockFi. This offering isn’t standard, according to a spokeswoman for BlockFi, who talked to Yahoo Finance. Three Arrows put up at least one-third of the total amount as collateral on Aave.

“Some of these individuals were quite intelligent, but they either held out for too long or kept purchasing more into a position that they understood very well would be very difficult to get out of in the worst-case scenario,” Polk said. “Some of these people held out for too long.”


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