THE WORST IS YET TO COME?
Red is the color of the day.
Coo! It's a Crypto Owl. Gliding above the bears infested trees and bringing the latest news of the day.
So, for Today’s menu:
🕛 Estimated read time: 2 minutes & 55 seconds
🍔 MAIN DISH: (Un)controllable situation of 3AC
🥬️ SIDE SALAD: Top 6 Crypto News from around the globe
(UN)CONTROLLABLE SITUATION OF 3AC
Before we jump into the rabbit hole, here's a short overview of what forced liquidation is.
It’s a situation, when you HAVE TO sell your assets. It could happen because of various reasons: some economic event (the best example is probably the whole situation in the crypto market right now), some company’s regulations or legal orders, and so on.
Think of forced liquidation as a tool being used to help recreate liquidity in uncontrollable situations.
One good and very recent example could be Three Arrows Capital aka 3AC - one of the largest crypto industry funds out there. Now it came into the spotlight as it is forced to repay lenders and other counter-parties, but it struggles to stay solvent.
So, how did it all start?
In our previous newsletters, I’ve mentioned Celsius and its troubles. And I asked a rhetorical question at the end: “is the worst yet to come?”. It seems like.. Yes, everyday seems to be getting worse and worse in this crazy bear market.
Long story short - Celsius is one of the 3AC borrowers, it recently became insolvent and is unable to repay its debt. That's no good for sure. Because every lender depends on the borrower and vice versa. It’s a chain of connected companies and projects. BlockFi, Genesis, Nexo and already mentioned Celsius – all of them are borrowing from 3AC, and it is known in general that 3AC took out loans from EVERY well-known lender.
So when one falls, it has a huge impact on everyone else involved.
How are things playing out?
Three Arrows Capital is now facing possible insolvency after experiencing at least $400 million liquidations. O-oh. That’s a lot of money. But how did they manage to get to this point?
Well, 3AC bought $10,9 million locked Luna for $559,6 million which is now worth around $670. Yes, dollars, not millions! After that, to recover the losses, it looks like 3AC made some greedy decisions by borrowing way too much. And now they have no (or very little) power to return those debts as other borrowers are facing the same struggles (it is very possible that 3AC is selling its existing crypto to repay debts and survive to live another day).
Talking about debts, there are reports that 3AC was paying about $264 million worth of Ether in debt to AAVE (one of the most popular lending platforms) to avoid liquidation. If Ether drops to $1042, the irrevocable loss will be created and the collateral will face a liquidation. Jeez. But that is just one example.
What else? Solana, Luna (R.I.P. already), Avalanche, Polkadot are also examples of 3AC investments. Now they are all spiraling down, for instance, Solana dropped around 90% since its highs throughout its existence.
While the situation in the market is very real, Su Zhu, co-founder and CEO of 3AC, had only this to comment on Twitter:
Great, that says a lot. Will see how that’s going to work out.
Final thoughts for now?
The crypto market is bleeding, so is your portfolio. This whole lender-borrower hiccup will continue to contribute to the crypto market falling down even more (at least until it gets resolved one way or another). In the meantime, Bitcoin recently hit $21000 and Ether reached $1100. That’s… sad, but let's hope for the best as nothing is certain until it plays out!
TOP 6 CRYPTO NEWS FROM AROUND THE GLOBE
ICI Bucharest Takes Advantage of Elrond Network to Build NFT Marketplace and DNS
Binance's CZ to Take Advantage of Current Crypto Bear Market
OpenSea Migrating to Web3-Based Marketplace Protocol Seaport
Binance and Splyt Team up to Provide Ridehailing Services on Binance Marketplace
Lacoste Rolls Out NFT Project, While Bill Gates Slams Crypto-Related Initiatives
CHERRY ON TOP
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Disclaimer: This newsletter is strictly educational. None of this information is intended to be financial advice. Always do your own research and act responsibly with your profits.