Crypto hedge fund Three Arrows is facing massive liquidation after a sharp market decline that could erode the company’s interests.
Speculation of further woes for Three Arrows comes after founder Zhu Su said on Twitter that the company “communicates with relevant parties” and is committed to “working this out”.
The fund saw millions of Lido Staked Ethereum (stETH) sell through multiple trades to avoid liquidating its positions.
Exposure to the Terra crash, Celsius and stETH has also raised questions about the state of his finances.
Three Arrows tries to cover his positions
On-chain data shows that Three Arrows is aggressively placing collateral to lower the liquidation threshold. crypto commentator @OnChainWizard notes that the company faces a $264 million liquidation on Aave if Ethereum prices reach $1,042.
Ethereum is currently trading at $1,122.86. But crypto markets are likely to fall further later in the day, following a rate hike by the Federal Reserve.
Coupled with founder Su’s comments, a report from The Block suggests that the company is negotiating with its lenders about getting more liquidity and avoiding liquidations.
Three Arrows is one of the biggest holders of stETH, which is also the source of its woes. The token, which is expected to trade at a 1:1 ratio to ETH, was de-pegged last week after Alameda Research — another major holder — dumped its stake in the token.
Both Three Arrows and Celsius had stETH collateral to borrow ETH. The decline in stETH prices is now exposing them to a possible liquidation.
Liquidation to Dent Ethereum Prices
If Three Arrows’ $242 million ETH position were liquidated, the company would be forced to dump its stake in the open market, causing further weakness in the token.
ETH is already struggling with the selling pressure caused by the stETH depegging. This has spread to several DeFi platforms and could set off a chain of liquidations in the market.
Celsius also sees some of its positions being liquidated in the event that ETH falls below $1,000, a scenario that could materialize following the Fed’s rate hike today.
With over five years of experience in global financial markets, Ambar plans to leverage this knowledge for the fast-growing world of crypto and DeFi. His main interest lies in finding out how geopolitical developments could affect crypto markets and what that could mean for your bitcoin holdings. When he’s not scouring the internet for the latest news, you can play him video games or watch Seinfeld reruns. You can reach him at [email protected]
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