Web3: Three Arrows Capital liquidations cascade; Litecoin delisted from exchanges after privacy upgrade; Circle’s new Euro-backed stablecoin at Silvergate
Gm Fintech Futurists —
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Fintech and Institutional Adoption
The domino effect has been full on with crypto assets. Well, you know.
Three Arrows Capital (3AC) is a crypto hedge fund reported to hold $18B AUM, before the decline of the market. They had billions of dollars of loans secured by crypto assets, and have now failed to meet margin calls on these loans. The reasons are the same as Celsius and every other over-levered DeFi and crypto asset manager (e.g., MicroStrategy) — a $560MM investment in LUNA, at least $40MM worth of staked ETH liquidated as prices fall, triggering further price declines. A lot of their portfolio was also in illiquid locked tokens (i.e., when you enter early), which could not be used to repay the loans to finance margin calls.
3AC’s largest lenders are Celsius’ CeFi competitors — Nexo and BlockFi to name a few. In the event of liquidation, these lenders will incur losses equal to the difference in value of liquidated collateral and the outstanding debt. Their equity buffer will erode to cover these losses, increasing insolvency risk and threatening the value of other assets. It has also been reported that projects backed by 3AC have part of their treasuries controlled by 3AC’s over-the-counter trading desk. For these tokens and any that are approaching unlock schedules, there is a strong chance of immediate sell-off to cover short-term liquidity shortfalls.
However, all of this isn’t profound. It is just the deleveraging of markets in response to macro headwinds and panic runs on shadow banking companies.
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