Nansen Analysis Examines How Terra Collapse Affected Celsius and Three Arrows Capital

Terra’s collapse ultimately contributed to highly publicized insolvency troubles at both Celsius and Three Arrows Capital, according to research from the blockchain analytics platform Nansen.

Nansen, which released its findings on Wednesday, took a closer look at on-chain flows of stETH, which represent Ethererum (ETH) that’s been staked with the platform Lido to accrue daily rewards.

“Looking at the Curve stETH/ETH pool imbalance on Curve, it is evident that the situation dates back to the UST/LUNA de-peg,” Nansen noted in the report’s introduction.

Typically, stETH’s value tracks that of ETH, but they’re not directly price-pegged. (The ability to directly redeem the token for ETH will not be introduced until after Ethereum’s Merge upgrade.) As such, if stETH’s value ever were to deviate from its historic 1:1 “peg” with ETH, many of the stETH-ETH leveraged positions trading on Aave would be liquidated.

That’s where Terra comes in.

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Decrypting DeFi is Decrypt's DeFi email newsletter. Art: Grant Kempster Amid the craziest week in crypto ever, the collapse of Terra's UST stablecoin and governance token LUNA emerged as the biggest story. Amid the crash, LUNA, formerly a top 10 coin by market cap, fell 100% to fraction of a fraction of a cent, and UST, designed to stay pegged at $1, bottomed out at 13 cents. So what the hell happened? Grab your coffee, you're going to need it. There were several forces at work. The first is the...

“Our on-chain investigation revealed that contagion stemming from the de-peg of UST and subsequent collapse of the Terra ecosystem was likely the main factor for stETH deviating away from this historical 1:1 stETH/ETH ratio,” tweeted the firm.

As Nansen explained, many stETH holders had traded their holdings for “bonded Ether” (bETH) on Terra prior to the network’s collapse in May. That bETH was then used to earn rewards paid out in TerraUSD (UST), previously the third-largest stablecoin.

However, as UST lost its dollar peg, many bETH holders redeemed their assets for stETH, which they then sold for ETH. The selloff created substantial downward pressure on stETH, causing it to deviate from ETH’s price.

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Crypto Fund Three Arrows Capital Ordered to Liquidate: Report

The Singapore-based crypto fund Three Arrows Capital (3AC) has been ordered to liquidate by a court in the British Virgin Islands, according to Sky News. Sky News reported that Teneo Restructuring will assist in the proceedings. Decrypt has contacted Teneo for more details on the liquidation. Liquidation refers to the formal shuttering of a business due to its inability to pay off debt and other financial obligations. Whatever assets the company holds are then sold off piecemeal to various credi...

Largely responsible for that downward pressure were both Celsius and 3AC. Each firm withdrew 50,000 stETH from Aave from June 8 to June 9, with the funds transferred to FTX in short order, where they likely were sold through OTC deals.

 2022 Crypto Crash

Celsius Enlists More Advisers to Help With Potential Bankruptcy: Report

Cryptocurrency lending company Celsius may be on the brink of bankruptcy, preparing for an upcoming filing by hiring more advisers, according to a report today from the Wall Street Journal, citing unnamed sources. Celsius has hired restructuring advisers from the firm Alvarez & Marsal to help the embattled crypto lender prepare for the potential filing, the Journal reported today. Just 12 days ago, the company abruptly froze its clients' accounts, suspending all withdrawals, swaps, and transfers...

Since the overall crypto market was tanking at the same time, Nansen suspects Celsius tried to convert its stETH for other liquid assets to pay down debt on leveraged assets. On June 11, the lending platform was forced to pause withdrawals to prevent a bank run.