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Crypto crash roundup: 3AC more bad news, latest disclosures

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Behind the dramatic crash in cryptocurrency prices, there are now five triggers that have contributed to the rout. The current evolving concern is the status of crypto hedge fund Three Arrows Capital (3AC), with a business partner claiming it has used around $1 million of its funds without authorization. 

TheBlock also reported that Citi is advising crypto lender Celsius on options following its suspension of withdrawals. Additionally, there are new updates regarding concerns over the value of the staked ETH coin stETH, from Tether about its stablecoin reserves, and an analysis of the Terra stablecoin fallout by Chainalysis.

Three Arrows Capital allegations

A considerable amount of gossip about the status of crypto hedge fund 3AC has been off the record or from anonymous Twitter commentators. Yesterday co-founder Zhu Su  tweeted, “We are in the process of communicating with relevant parties and fully committed to working this out.”

One of its business partners 8BlocksCapital has stepped forward, alleging that 3AC used almost $1 million of its funds without authorization.

MIT and Cambridge-educated Danny Yuan, the CEO of market maker 8BlocksCapital, isn’t a high profile crypto personality nor is his firm. Twenty months ago, 8BlockCapital did a deal with 3AC allowing it to use 3AC trading accounts. That’s because 3AC is such a big player in the market that they get preferential trading fees. 

Yuan said on Twitter, “Our agreement with them was: we withdraw whenever we want. 100% of the PNL belongs to us. They are never to move our funds without permission … and in return, we pay them fees for their service.”

However, he claims that in recent days 3AC used around $1 million of 8BlocksCapital funds to meet margin calls and said, “they still have assets on a number of platforms (you know who you are). We call for you to freeze their assets so that those who 3AC owes can be paid back in the future after legal proceedings.”

One of the issues with the latest crypto boom is the degree of leverage. And the unwinding is not pretty, especially as 3AC is very interconnected with market makers and liquidity providers.

Tether stablecoin responds

Yesterday Paolo Ardoino, CTO of the largest stablecoin Tether, responded to concerns about the stablecoin’s assets, saying it has no exposure to 3AC. It had previously been reported that Tether made a $1 billion loan to Celsius. Ardoino says it has no exposure to Celsius and that its loan to the crypto lender was liquidated without losses.

Another concern about Tether is the amount of commercial paper included in the assets that back the stablecoin. Ardoino stated the amount was halved over the last quarter with $8.4 billion left at the end of June with a stablecoin market cap at that stage of $72.5 billion.  

Terra and stETH analysis

Meanwhile, Coinshares’ analyzed the discount on Lido’s stETH used for staking, which has alarmed some in the crypto sector. While the token will be redeemable for ETH 1 for 1 in the future, it is currently at a discount of more than 6%. Some have compared this to a stablecoin collapse, but it’s not a stablecoin. Coinshares argues that there should be some discount at this stage because it’s not yet redeemable, and there are risks, including liquidity risks and smart contract risks in the Lido staking service.

And Chainalysis shared the results of its investigation into the transactions that caused the Terra collapse. 

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