Rumors Swirl About Financial Stress at Three Arrows

Crypto Fund Three Arrows Capital Dumped stETH Over the Past Week: Data

By: Aleksandar Gilbert Loading...

Rumors Swirl About Financial Stress at Three Arrows

On-chain data has prompted speculation that Three Arrows Capital, a crypto-focused, Singapore-based hedge fund, is insolvent and may become the latest high-flying company to crash in the bear market.

Three Arrows Capital sold at least $40M worth of Lido’s staked Ether early Tuesday, making it the largest seller of the token in the past week. The firm, which has backed Avalanche, Solana, Terra and a $100M NFT fund launched last August, did not immediately respond to a request for comment. On Twitter, co-founder Su Zhu said that his firm is in touch with counterparties and is committed to resolving the situation.

Market observers have kept a close eye on stETH, which has historically traded at par with ETH. That began to change in May, and its more dramatic “de-peg” last week has created an opportunity for ETH bulls — and a headache for its largest holders.

Ethereum Bulls See Opportunity in Celsius Collapse, stETH ‘De-Peg’
Ethereum Bulls See Opportunity in Celsius Collapse, stETH 'De-Peg'

Ethereum Bulls See Opportunity in Celsius Collapse, stETH 'De-Peg'

Lido's stETH liquid staking derivative is trading at a 7% discount to ETH.

The Defiant The Defiant

Celsius Network, a centralized, one-stop-shop for crypto investors and traders, has been facing pressure to sell its stETH holdings in order to make good on customer withdrawals. The pressure was so intense that, on Sunday night, it froze customer assets so it could “honor, over time, its withdrawal obligations.”

stETH Fire Sale

But hawkeyed observers have noted Celsius was not the largest seller of stETH over the past several days — not by a long shot.

“People think Celsius is the biggest stETH dumper but its 3AC and it isn’t relatively close,” crypto trader MoonOverlord wrote. “They are dumping on every account and seed round address they have, most looks like its going to payback debts and outstanding borrows they have.”

Three Arrows’ stETH fire sale began in May, right after the collapse of Terra’s UST stablecoin, according to DeFi analyst DeFiyst. According to The Block, $400M of Three Arrows’ positions have been liquidated already. Crypto analyst Onchain Wizard reports that another $300M is at risk of liquidation on Aave and Compound if the market continues to crater.

At the time, stETH briefly fell to 95 cents on the dollar relative to Ether “and 3AC pulled 127k stETH in liquidity from Curve ($246m at the time),” they wrote. “They have been in and out of AAVE, wstETH, etc. until the selling began this week.”

In several transactions Tuesday, the hedge fund withdrew stETH it had deposited in Aave, an interest-bearing DeFi protocol. It then exchanged at least 38,900 stETH – worth about $40M – for ETH.

Three Arrows was founded in 2012 by Su Zhu, a onetime securities trader at Deutsche Bank, and Kyle Davies, a former trader at Credit Suisse, according to their LinkedIn Accounts. It’s grown into one of the most formidable funds in crypto, and while it doesn’t disclose its assets under management it is believed to manage billions of dollars worth of assets.

Zhu has been criticized for apparently hyping stETH as his firm was in the process of dumping it.

“Most of the steth fair discount analysis ive seen misses that from an onchain functionality perspective, steth is nearly pari passu w eth functionality in defi,” he wrote on Sunday.

Crypto traders fired back.

“Literally the moment 3AC capitulates after holding STETH the whole way down – He posts bullish about it,” BullishKid wrote. “How much do you have to hate People around you to do this?”

Updated on June 15 to report $400M liquidation and other details.

“Pls no more bamboozle. i see your $100m dump transactions sir.”