😧 Investors Scramble to Get a Grip on Depth of Three Arrows’ Trouble
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Details on Debt Woes in $10B Crypto Fund Are Hard to Come By
By Jason Levin
STRESS The fear is palpable. Six weeks after Terra collapsed and one week after Celsius, the embattled crypto bank, suspended withdrawals, investors are anxiously watching a $10B hedge fund cope with serious stress.
LOANS Three Arrows Capital is sitting on what are believed to be billions of dollars worth loans secured by cryptocurrencies. With the market down 56% this year in its worst bear market since 2018, investors believe the collateral no longer supports the loans. Now the fund is on the hook to start paying them back, and everyone is wondering whether it will default.
LIQUIDATION On Wednesday, The Defiant reported that Three Arrows sold at least $40M worth of staked Ether as part of an apparent liquidation. It is widely believed that co-founder Su Zhu has been aggressive in using leverage to maximize his potential investment returns.
SUPER CYCLE “If 3AC were to become insolvent, it would be catastrophic,” The DeFi Edge, an investor with 175,000+ followers on Twitter, told The Defiant. “Zhu believed in the super cycle and used a ton of leverage to increase their position size.If the firm cannot pay off its positions, it’ll force more liquidations.”
MakerDAO Errs on Side of Caution as Credit Risks Mount
By Samuel Haig
DISABLED MakerDAO is taking no chances. As doubts about crypto credit rock the digital asset landscape, MakerDAO, the protocol behind the DAI stablecoin, voted on June 15 to temporarily disable Aave’s DAI Direct Deposit Module (D3M).
COLLATERAL The move is tied to the drama engulfing Celsius, the crypto bank that suspended deposit withdrawals last week. Aave is a leading DeFi money market project, with a market capitalization of $866M. Its module is a smart contract that provides trusted third-party lending protocols direct access to generate DAI to a specific pool without posting collateral.
DEBTS The D3M enables Aave to create DAI that can only be transferred to its DAI lending pool. Disabling the module will mean that Aave can no longer generate DAI at will, allowing it only to pay off existing debts. The change will be available for execution on June 17.
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By Samuel Haig
NEWS In a sign of the magnitude of the crypto crash, more than $1B worth of digital assets were liquidated on June 14, according to data from Coin Glass. Around $480M was wiped out on centralized exchanges over the past 24 hours. Ether represents 42% or $202M of margin calls, while $154.4 worth of BTC positions have been taken out.
MARGIN CALLS On-chain liquidations have also surged, with 370 margin calls driving more than 53M DAI on MakerDAO alone. By contrast, 401 liquidations worth $55.8M have taken place over the past 30 days. There are also an estimated $202M worth of positions at risk on top lending protocol Aave should the price of Ether slump below $1,009.
COLLATERAL Liquidation describes when a leveraged position is forcefully closed due to the value of the collateral assets backing it falling below the required margin threshold to keep it open.
RALLY Crypto markets sustained the rally triggered Wednesday when the Federal Reserve raised benchmark interest rates 0.75%, the biggest hike since 1994.
PLUNGE ENDS Ether was up 9.2% in mid-morning trading U.K. time, and Bitcoin jumped 5.2% in the last 24 hours, according to data from CoinGecko. The platform’s DeFi index, comprising top names in the sector such as Solana and Uniswap, ended its recent plunge as its market capitalization jumped almost 5%.
RELIEVED Investors appeared to be relieved by the Federal Reserve’s action to dampen inflation, which hit 8.6% in May and tipped the S&P 500 into a bear market. The Fed signalled that rate hikes of this magnitude would not be commonplace going forward.
TRACKING STOCKS As they have for months, cryptocurrencies moved in line with stocks, which jumped after the U.S. Federal Reserve raised interest rates by 75 basis points, its largest increase since 1994. Fed Chairman Jerome Powell said another increase of this magnitude would not be likely at the Fed’s next meeting.
By Owen Fernau
NEWS Decentralized exchanges have been one of the success stories of DeFi, beating out their centralized counterparts last year. Now, things are turning around.
MARKET SHARE The market share of decentralized exchanges (DEXs) has plunged to 55% from a record 80% in June 2021. That’s just marginally higher than trading volume on CEXs, according to a chart put out by Chainalysis. DEX trading volume climbed to as high as $240B at its peak, compared with approximately $100B in CEX volume at the time.
VOLUME If the trend of the last year or so continues CEXs will overtake DEXs as the bear market deepens. Granted, the comparison between transaction volume on both types of exchanges isn’t totally apples-to-apples — on-chain volume for CEXs refers to the value of the assets entering and exiting the exchanges, not specifically the trade volume which happens on off-chain orderbooks.
Web3 Social Media
By Jason Levin
PLATFORM Competition to become the go-to crypto native messaging platform is intensifying with data analytics platform Nansen joining the race.
TOKEN-HOLDERS Nansen launched a crypto-native messaging platform currently open in beta to their paid users as well as token-holders of select communities, the company said in an emailed statement.
HACKS The platform, Nansen Connect, was built as a reaction to the countless hacks, pump and dump groups, and spam that the crypto community experiences on Twitter and Discord. Nansen Connect is only open to paid Nansen Standard members and token-holders of NFT collections like Bored Ape Yacht Club, Hashmasks, and Doodles.
By Claire Gu
STEPS TO TAKE Yes, it’s a bear market, and everything looks grim. But that doesn’t mean investors should despair. Indeed, there are number of steps you can take to evaluate the crypto market at this juncture.
METRICS That’s why The Defiant is launching a series of guides to help readers navigate this tricky period in the markets. In this debut installment, we look at some of the most important metrics investors should examine when sizing up a blockchain project.
TOKENOMICS The core concept of crypto tokenomics is supply and demand. These forces set prices. The number of tokens issued to the public is controlled by the project’s team or a pre-defined algorithm. Here’s a primer on the essentials of tokenomics:
Jesse Powell, a founder and the chief executive of Kraken, one of the world’s largest cryptocurrency exchanges, recently asked his employees, “If you can identify as a sex, can you identify as a race or ethnicity?”
🔗 A Manhattan Landlord Listed His Office Building in ETH as an NFT. Then Its Price Dropped $12M: CoinDesk
A New York City office building went on sale for $29 million two weeks ago, but with a Web 3 twist: The rights to purchase the property are being sold as a non-fungible token (NFT) on OpenSea.
Billionaire owner of the Dallas Mavericks Mark Cuban has weighed in on the latest crypto crash, saying that projects with no “valid” business model will eventually die out.
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🌪 Rumors Swirl About Financial Stress at Three Arrows On-chain data has prompted speculation that Three Arrows Capital, a crypto-focused, Singapore-based hedge fund, is insolvent and may become the latest high-flying company to crash in the bear market.
Coinbase Leads Wave of Layoffs as Crypto Girds for Rough Stretch First came the market collapse. Now come the layoffs. When Coinbase announced it was laying off almost a fifth of its staff, or 1,100 employees, on Tuesday it was clear a tough period for the young cryptocurrency industry is about to get a whole lot tougher.
🧑💻 ✍️ Stories in The Defiant are written by Owen Fernau, Samuel Haig, Jason Levin, DeFiDad, Aleksandar Gilbert, and yyctrader, and edited by Edward Robinson, yyctrader, and Camila Russo. Videos are produced by Robin Schmidt, Alp Gasimov and Daniel Flynn. Podcast is led by Camila, edited by Alp.
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