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Flows of Ether Offshoot Reveal Terra’s Ripple Effect on Crypto

The contagion that has spread to the Celsius network and the Three Arrows Capital since the explosion of the Terra cryptocurrency ecosystem bears a resemblance to the 2008 global financial crisis.

The contagion that has spread to the Celsius network and the Three Arrows Capital since the explosion of the Terra cryptocurrency ecosystem bears a resemblance to the 2008 global financial crisis.

A new report from blockchain data analytics firm Nansen found that the impact of TerraUSD’s fall in Terra algorithmic stablecoin in May could be determined by state tracking, a token that has become a popular parallel asset for borrowing and borrowing in decentralized financing.

This is as strong an impact as what happened during the Great Recession when the financial system fell into turmoil as Wall Street rushed to increase its capital position, forcing hedge funds and investment banks to leverage and sell assets.

Celsius and the three arrows were the main holders of the state, representing the stacked ether in the etherium blockchain, according to a report released Wednesday. The three arrows are said to have been ordered to be liquidated this week.

Like “3AC / Celsius is Bear Stearns / Lehman”, Tarun Chitra, CEO of Gauntlet Network, a crypto risk-modeling platform, compares two crypto companies with an investment bank that collapsed during the 2008 financial crisis.

Although Nansen’s analysis shows that Celsius and Three Arrows were not initially the top sellers of stETH, as the overall crypto market both companies collapsed and potential others became mandatory sellers of stETH tokens, which were already in their main trading venue, Curve Finance.

Celsius and Three Arrows did not respond to a request for comment for this story.

Before Terra melted in May, Terra was transformed into Beth or Bonded Ether in the Terra blockchain to win the award given to USD. And when TerraUSD began to fail to keep its peg with the US dollar, many BETH depositors returned it to the STETH and then traded for traditional ether, according to Nansen.

“Because of the market conditions after the collapse of a top ecosystem, people were risk-free by selling the state in ether,” said Daniel Khu, an analyst at Nansen. The sale has made the price of stETH worse for Ether.

An unwinding

As a version of Ether, the second largest cryptocurrency, stETH was launched by decentralized app Lido Finance in late 2020 as a solution for ether stacking, a way for investors to lock up tokens and earn rewards before Ethereum merges. Upgrade to network.

Nansen reports that many companies have used stETH as collateral in the default loan project Aave to borrow more ether and then share it with Lido in exchange for more stETH – which has increased the risk of liquidation in the recent market turmoil.

“As the market situation worsens and the holding entity [stETH] Many companies have vacated their leverage positions and withdrawn their liquidity due to internal problems such as bankruptcy, ”Khu said.

Chitra said that before the crypto recession, stETH traded in lockstep with Ether because it could be redeemed 1-to-1 for that token shortly after the merger, which is expected to happen in the second half of this year.

Nansen’s analysis also highlights the opacity of centralized players.

Between June 8 and 9, digital wallets labeled as belonging to Celsius withdrew a total of 50,000 STETH from Aave which eventually became the crypto exchange FTX. According to Nansen, the bulk of the state was probably sold through an over-the-counter deal. The crypto lender announced on June 12 that it would stop all withdrawals, exchanges and transfer activities on its platform.

“Often, users of such platforms do not know where their funds end up, and in some cases, if something goes wrong, they have no control over their funds. For example, many platforms withdraw withdrawals,” Nansen wrote in the report.

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