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.

“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.

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.

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.

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