Rumours that Three Arrows Capital, a crypto hedge fund manager based in Singapore (3AC), may be bankrupt are making the rounds on social media.
The crypto hedge fund managed by Three Arrows Capital may be insolvent
June 14, 2022https://t.co/z4wtQX9LsO pic.twitter.com/BKmB1ebAw8
Web3 is doing great (@web3isgreat June 15, 2022
It is widely considered a major player within the cryptocurrency industry. The firm’s most recent investments were a $20m capital raise in DEX platform Orderly Network, June 9, and a $2.5m capital injection in Laevitas data analytics company as its lead investor.
Rumours suggest that the company may be over-exposed due to recent market turmoil. There are so many potential pitfalls in many crypto projects that it is difficult to know which counterparties could be affected.
Are 3AC assets being dumped?
On-chain analysis revealed that 3AC had pulled off-deposit STETH from DeFi protocol Aave Tuesday. According to Defiant it sold the funds in several transactions that totaled around $40 million.
Staked Ether or stETH is Ethereum that has been locked into the Beacon Chain Staking Contract (which can’t be withdrawn until mainnet Merge rolls in). stETH is collateral for borrowing more ETH from DeFi platforms. It’s basically a “workaround” to unlock tokens from the Beacon Chain Staking Contract.
Twitter user @MoonOverlord took into account the social media activity by Three Arrows Capital cofounders Kyle Davies & Su Zhu and combined them to make insolvency claims.
Trouble for 3AC? rumors swirling
Zhu and Kyle have not tweeted or liked anything for days. Zhu removed every # tag and coin from his bio. Zhu deleted his Instagram account an hour ago.
— Moon (@MoonOverlord), June 14, 2022
@MoonOverlord further investigated and concluded that 3AC’s “dumping” of stETH was done to pay off debt obligations.
people think Celsius is the biggest stETH dumper but its 3AC and it isnt relatively close, they are dumping on every account and seed round address they have, most looks like its going to payback debts and outstanding borrows they have pic.twitter.com/9bZnmTXQzj
— Moon (@MoonOverlord), June 14, 2022
Will stETH be the straw to break the camel’s back
stETH should trade at 1:1 parity with Ethereum, as the derivative token can be redeemable for Ethereum after the mainnet Merge.
But, this “peg”, as it is known, has been showing signs of falling since June 9. On June 13, stETH dropped as low as 0.89 against ETH.
Source: STETHWETH at TradingView.com
Lido, the stETH token issuancer, tweeted the following day that DEX prices did not affect a holder’s ability to redeem Ethereum on a 1:1 basis.
Lido backs ETH staking deposits 1:1 with ETH stripped ETH.
The exchange rate between STETH:ETH and ETH is not a reflection of the underlying backing for your staked Ethereum, but rather a fluctuating secondary price.
— Lido (@LidoFinance) June 10, 2022
However, holders of stETH who wish to sell their position can still do so at a reduced rate. This all points out the fragility and volatility of DeFi.
Zhu sent a confusing tweet Wednesday, suggesting that things at Three Arrows Capital were not okay and that “relevant parties” are being affected.
We are currently in the process to communicate with relevant parties. We are fully committed to this outcome
— Zhu Su
(@zhusu) June 15, 2022
As the situation changes, more will be added.
Rumours of Three Arrows Capital’s insolvency raise questions about the soundness and reliability of DeFi CryptoSlate.
