Finance redefined: The fall of Three Arrow Capital and Celsius leads to a tsunami of sales in DeFi


Last week, the decentralized finance (DeFi) ecosystem faced the brunt of bears fueled by rumors of liquidations from Three Arrow Capital (3AC) and Celsius. MakerDAO has decided to cut Aave (AAVE) from its direct deposit module as a protective measure in light of the possibility that Celsius will pull back and drive down the price of staked ether (stETH).

Trading firm 8 Blocks Capital has called on platforms holding 3AC-owned funds to freeze assets as rumors of 3AC’s insolvency remain afloat. Micheal Saylor believes that Bitcoin (BTC) and the Lightning Network can solve many problems in the DeFi ecosystem.

The top 100 DeFi tokens have been hit hard by the bears, with the majority of tokens seeing multi-month lows as well as double-digit losses over the past week.

Crypto crash wreaks havoc on DeFi protocols and CEX

A sharp sell-off in cryptocurrency in the markets on Monday caused significant repercussions for projects and entities. DeFi End Protocol Aave usage rates have dropped for almost all stablecoin borrowings. Most notably, borrowing for Binance USD (BUSD) is now just 30%, down from a high of 80% in May.

The utilization rate is the ratio of funds borrowed to funds deposited. Since borrowers are required to post digital asset collateral before taking out a loan on Aave, users are likely withdrawing en masse in light of the Monda sale to avoid liquidation. Data from DefiLlama indicates that Aave’s total locked value has risen from $33.51 billion last October to $8.11 billion.

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Su Zhu’s cryptic statement as rumors swirl about 3AC liquidations and insolvency

Su Zhu, the co-founder of Singapore-based venture capital firm Three Arrows Capital (3AC), released a cryptic statement on Twitter in response to swirling rumors that the company is battling insolvency.

Online discussions about 3AC’s inability to meet a margin call began after 3AC began moving assets this week to supplement funds on decentralized financial platforms such as Aave to avoid potential liquidations in the middle of Ether (ETH) price drop this week. There are unconfirmed reports that 3AC has faced liquidations totaling hundreds of millions from multiple positions.

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Maker cuts DAI supply from Aave as Celsius fallout continues

MakerDAO has voted to cut off lending platform Aave’s ability to generate Dai (DAI) for its collateralless lending pool as Celsius’ liquidity crisis risks weigh heavily on the entire crypto ecosystem .

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The Decentralized Autonomous Organization (DAO) made the move as a way to mitigate Maker Protocol’s exposure to the beleaguered staking and lending platform in the event that Celsius goes bankrupt and also implodes the stETH peg.

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Liquidity provider asks platforms to freeze 3AC funds to recover assets after litigation

Danny Yuan, CEO of trading firm 8 Blocks Capital, called on platforms that hold funds held by 3AC to freeze assets as rumors of 3AC’s insolvency remain afloat.

In a Twitter thread, Yuan explained their company’s involvement with 3AC, noting that they pay the company to use the trading accounts they own. The agreement provided for the possibility of withdrawing funds at any time.

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Bitcoin and Lightning Network can save DeFi from adversity – CEO of MicroStrategy

In light of the recent fragility of the DeFi sector, Michael Saylor, Bitcoin maximalist and CEO of MicroStrategy, believes that Bitcoin and the Lightning Network can come to the rescue of the DeFi market.

With two huge protocols, Terra and Celsius, facing acute difficulties a month apart, the DeFi sector is going through tough times. And, in a recent tweet, Saylor suggested that Bitcoin and Lightning could help stabilize the industry.

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DeFi Market Overview

Analytical data reveals that DeFi’s total locked value saw another week of outflows over the past week, with the value dropping to $55 billion. Data from UKTN Markets Pro and TradingView reveals that the top 100 DeFi tokens by market cap saw a week filled with volatile price action with bears dominating market trends.

The majority of DeFi tokens in the top 100 rankings by market capitalization have bled into double digits. The Theta network showed the biggest resistance falling 12% over the past week, followed by the Basic Attention Token (BAT), which fell 14%. The remaining top 100 DeFi tokens have fallen by more than 20%, with some seeing losses of up to 40% in the past seven days.

Thanks for reading our roundup of this week’s most impactful DeFi developments. Join us again next Friday for more stories, ideas and education in this dynamically evolving space.