Finance Redefined: Three Arrow Capital and Celsius fall brings a tsunami of sell-off in DeFi
This past week, the decentralized finance (DeFi) ecosystem faced the brunt of the bears fueled by liquidation rumors of Three Arrow Capital (3AC) and Celsius liquidations. MakerDAO decided to cut off Aave (AAVE) from its direct deposit module as a safeguard in light of the possibility that Celsius folds and crashes the price of staked Ether (stETH).
Trading firm 8 Blocks Capital called out to platforms holding funds owned by 3AC to freeze the assets as rumors of 3AC’s insolvency stay afloat. Micheal Saylor believes Bitcoin (BTC) and the Lightning Network can solve many of the DeFi ecosystem problems.
The top 100 DeFi tokens were hit hard by bears, with the majority of tokens registering multi-month low along with double-digit losses over the past week.
Crypto crash wreaking havoc on DeFi protocols, CEXs
A heavy cryptocurrency sell-off in the markets on Monday caused significant ripples for projects and entities alike. DeFi ending protocol Aave’s utilization rates have fallen across nearly all stablecoin borrowings. Most notably, borrowings for Binance USD (BUSD) now stand at a mere 30% compared to a high of 80% back in May.
The utilization rate is the ratio of borrowed to deposited funds. Since borrowers are required to post digital asset collateral before taking out a loan on Aave, users are likely withdrawing en mass in light of Monda’s sell-off to prevent liquidation. Data from DefiLlama indicates that Aave’s total value locked has fallen from $33.51 billion last October to $8.11 billion.
Su Zhu’s cryptic statement as rumors swirl of 3AC liquidations and insolvency
Su Zhu, the co-founder of Singapore-based crypto venture capital firm Three Arrows Capital (3AC), has put out a cryptic statement on Twitter in response to swirling rumors that the company is battling against insolvency.
Online chatter about 3AC being unable to meet a margin call began after 3AC started moving assets around this week to top up funds on decentralized finance platforms such as Aave to avoid potential liquidations amid the tanking price of Ether (ETH) this week. There are unconfirmed reports that 3AC faced liquidations totaling hundreds of millions from multiple positions.
Maker cuts off Aave’s DAI supply as fallout from Celsius continues
MakerDAO has voted to cut off lending platform Aave’s ability to generate Dai (DAI) for its lending pool without collateral as the risks of Celsius’s liquidity crisis loom large over the entire crypto ecosystem.
The decentralized autonomous organization (DAO) made the decision as a means of mitigating the Maker protocol’s exposure to the beleaguered staking and lending platform in case Celsius goes belly up and implodes the stETH peg as well.
Liquidity provider asks platforms to freeze 3AC funds to recover assets after litigation
Danny Yuan, CEO of trading firm 8 Blocks Capital, called out to platforms that are holding funds owned by 3AC to freeze the assets as rumors of 3AC’s insolvency stay afloat.
In a Twitter thread, Yuan explained their company’s involvement with 3AC, noting that they are paying the company to use the trading accounts that they own. The agreement included the ability to withdraw funds at any given time.
Bitcoin and Lightning Network can save DeFi from adversity — MicroStrategy CEO
In light of the recent fragility in the DeFi sector, Bitcoin maximalist and MicroStrategy CEO Michael Saylor feels that Bitcoin and the Lightning network can come to the rescue of the DeFi market.
With two enormous protocols, Terra and Celsius, facing acute difficulties within a month of each other, the DeFi sector is going through a tough time. And, in a recent tweet, Saylor suggested that Bitcoin and Lightning could help stabilize the industry.
DeFi market overview
Analytical data reveals that DeFi’s total value locked registered another week of outflow over the past week, with the value dipping to $55 billion. Data from Cointelegraph Markets Pro and TradingView reveals that DeFi’s top-100 tokens by market capitalization registered a week filled with volatile price action with bears dominating the market trends.
The majority of the DeFi tokens in the top 100 ranking by market cap bled in double digits. Theta network showed the biggest resistance falling by 12% over the past week, followed by Basic Attention Token (BAT), which fell by 14%. The remaining the top-100 DeFi tokens fell by more than 20%, with some registering losses as high as 40% over the last seven days.
Thanks for reading our summary of this week’s most impactful DeFi developments. Join us again next Friday for more stories, insights and education in this dynamically advancing space.
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