Behind the dramatic crash in cryptocurrency prices, there are now five triggers that have contributed to the defeat. The current evolving concern is the status of crypto hedge fund Three Arrows Capital (3AC), with a business partner claiming that it has used around $1 million of its funds without authorization.
TheBlock also reported that Citi is advising crypto lender Celsius on options following the suspension of withdrawals. There are also new updates on concerns over the value of the ETH staked coin stETH, Tether over its stablecoin reserves, and an analysis of the fallout from the Terra stablecoin by Chainalysis.
Three Arrows Capital accusations
A considerable amount of gossip about the state of crypto hedge fund 3AC has been off the record or from anonymous Twitter commenters. Yesterday co-founder Zhu Su tweeted“We are in the process of reaching out to the relevant parties and fully committed to resolving this.”
One of his business partners, 8BlocksCapital, has come forward, claiming that 3AC used nearly $1 million of his funds without authorization.
MIT and Cambridge educated Danny Yuan, the CEO of market maker 8BlocksCapital, is not a high-profile crypto personality and neither is his company. Twenty months ago, 8BlockCapital made a deal with 3AC allowing it to use 3AC business accounts. This is because 3AC is such a big player in the market that they get preferential trading rates.
Yuan said in Twitter“Our agreement with them was: we withdraw whenever we want. 100% of NLP belongs to us. They should never move our funds without permission…and in return, we pay them fees for their service.”
However, he claims that in the past few days 3AC used around $1 million of 8BlocksCapital funds to meet margin calls, saying, “They still have assets on various platforms (you know who that is). We ask that you freeze your assets so that those owed by 3AC can be reimbursed in the future after legal proceedings.”
One of the problems with the latest cryptocurrency boom is the degree of leverage. And relaxation is not pleasant, especially since 3AC is highly interconnected with market makers and liquidity providers.
Tether stablecoin responds
Yesterday, Paolo Ardoino, CTO of Tether, the largest stablecoin, responded to concerns about the stablecoin’s assets, saying that he has no exposure to 3AC. It had previously been reported that Tether made a $1 billion loan to Celsius. Ardoino says that he has no exposure to Celsius and that his loan to the crypto lender was paid off with no loss.
Another concern about Tether is the amount of commercial paper included in the assets backing the stablecoin. Ardoino stated the amount was cut in half during the last quarter with $8.4 billion remaining at the end of June with a market capitalization at that stage of $72.5 billion.
Analysis of Terra and stETH
Meanwhile, Coinshares discussed the discount on Lido’s stETH used for staking, which has alarmed some in the cryptocurrency industry. While the token will be redeemable for ETH 1-for-1 in the future, it is currently discounted by more than 6%. Some have compared this to the collapse of a stablecoin, but it is not a stablecoin. Coinshares argues that there should be some discount at this stage because it cannot be redeemed yet and there are risks, including liquidity risks and smart contract risks in the Lido staking service.
And Chainalysis shared the results of its investigation into the transactions that caused the Terra crash.