“Comprehensive Review” From LUNA, Celsius to Sanjian’s series of explosions, is BlockFi the next hidden crisis? | Dynamic zone movement-the most influential blockchain media (Bitcoin, cryptocurrency)

全面復盤》從 LUNA、Celsius 到三箭的連環爆雷,BlockFi 是下個潛藏危機?

Starting from the crash of LUNA in May 2022, to the recent freeze of user accounts by Celsius, and the bankruptcy of Three Arrows Capital (3AC)… The serial explosion of many events has caused the market to slump. This article will explain the reasons for the domino effect and explore what other crises are lurking in the crypto market? (Recap:The drying up of epic liquidity” From Celsius to Three Arrows, the domino effect of the tens of billions of cryptocurrency giants) (background supplement:MicroStrategy loses $1.6 billion! BTC fell below 17,600, some miners fell below the “shutdown price”)

sinceStarting in May 2022, a thriving crypto market seems to have cooled down suddenly. The previous beautiful imaginations were broken one by one, and the giants in the industry also faced the bleak ending of liquidation and decline one after another. In this short month, we were “fortunate” to witness such explosive events as the crash of LUNA, the freezing of Celsius accounts, the liquidation of Three Arrows Capital, etc. However, this seems to be just the beginning.

So in this article, let’s take a look at the past and present of these events, and by the way, are there other hidden crises in the crypto market today?


LUNA crashes

Speaking of the starting point of all this, LUNA has to be mentioned.

On May 10, 2022, the price of LUNA, the native token of the Terra ecosystem, collapsed, and its price was almost zero at one point. Compared with the huge decline of LUNA, what is more frightening is the decoupling of the decentralized algorithm stable currency UST. According to data provided by Coiogecko, the price of UST (now renamed USTC) is also currently near zero, at $0.008 at the time of writing.

Although the two are almost the same in terms of price performance, UST, as a decentralized algorithm stable currency, regards price stability as the fundamental. This complete decoupling (or even violent death) is undoubtedly a very heavy blow to market confidence. So as to cause a series of subsequent chain reactions.

The reasons for the extreme market situation in Terra ecology are complex and diverse. We still do not know many aspects until today, but there are some reasons that are not difficult to figure out.

1. The test of stablecoin design in extreme situations

Terra’s dual-token arbitrage stablecoin design and typical over-collateralization requirements are prone to tragic large-scale liquidation events when the crypto market encounters violent fluctuations.

Previously, during the 5.19 crash in 2021, UST experienced a price de-anchoring situation due to spiral liquidation, and even de-anchored by more than 10% at one point. However, the stampede liquidation of ETH in the 3.12 event in 2020 also verified the worst possible huge disruption in extreme cases. There is no doubt that the destructive force and scope of the UST incident far exceeded the previous 5.19 and 3.12, which caused endless joint collapse.

2. Inversion risk between UST market capitalization and LUNA market capitalization

Previously, the market value of LUNA has been much higher than the market value of UST, which leads to the fact that when LUNA falls, sufficient room for liquidation is generally reserved to avoid extreme situations of insolvency, thus preventing the death stampede after the confidence dam collapses.

However, in the past six months, the circulation of UST has soared rapidly. As of May 9, it has exceeded 18.7 billion US dollars, an increase of more than 11% in the past 30 days.

This is a very embarrassing situation. When the circulating market value of LUNA and UST are quite close, if the secondary market price of LUNA continues to fall, the circulating market value of UST may exceed LUNA.

According to the corresponding price, when LUNA falls below $55, the circulating market value of UST will exceed that of LUNA, and there is a high probability that it will bring extreme panic in the market and lead to a death spiral. Stampedes can also be exacerbated by UST flight sentiment. And unfortunately, it all came to pass on May 10.

3. The Fed will raise rates

Historically, the two rate hikes in 1994 and 2000 were the same 50 percentage points in 2022, but the two had very different policy effects: the former resulted in a soft landing for the U.S. economy, allowing the economy to maintain healthy growth; the latter punctured the stock market bubble and plunged the U.S. economy into recession.

The 50BP rate hike in 1994 was successful for two main reasons: one was a precautionary advance rate hike; the other was a stable external environment; and the failure of the 2000 rate hike was mainly due to the fact that the U.S. stock bubble was already quite large at the time. In addition, the 9/11 incident in 2001 broke the myth of homeland security and shook the confidence of the market.

Compared to 1994 and 2000, the macroeconomic backdrop in 2022 is volatile and highly uncertain. Inflation in the United States has already been high, and the interest rate hike at this time is no longer a precautionary interest rate hike in 1994. The impact of the new crown virus and the Russian-Ukrainian war is superimposed, and the stock market bubble is high. Therefore, the interest rate hikes currently have a catastrophic consequences like 2000. In a sense, Terra has also become a victim of the interest rate hike.

Further reading:Multi-party analysis of UST decoupling: what is the reason for the collapse of the crypto market Terra ecological out of control? How’s the situation going?

Celsius’ liquidity crisis

The bankruptcy of all bank-like business model companies can be attributed to a liquidity crisis, and Celsius is no exception. Typical liquidity crises include the following:

1. Bad debt loss problem

In fact, all banks will have bad debts, which is an unavoidable problem in the market environment. But usually as long as it is not particularly serious and fails to hurt the muscles and bones, there will be no major problems. Whether it is serious or not depends on the scale of bad debts. The worst case is insolvency and huge deficit.

However, in today’s credit rating system and risk management measures are relatively complete, this situation generally does not occur (but does not exclude special circumstances).

2. Mismatch between current liabilities and non-current assets

Generally speaking, the term of the liabilities is short, such as the deposit period; and the period of the asset side is relatively long, such as long -term loans, so as to obtain higher cash flow returns. quasi-banking companies) to assume compensation for liquidity risk. However, once a black swan event occurs, it is prone to liquidity shortages and lead to asset selling and runs.

3. Withdrawal demand increases, liquidity decreases

Whether on-chain or off-chain, the core element of financial markets is consensus (or confidence). Even large traditional banks have to be alert to the occurrence of runs, because any bank will inevitably have the problem of liquidity mismatch.

And for Celsius, unfortunately, it has all of the above.

But the fuse of this incident must be attributed to the decoupling of UST. According to the data, Celsius once injected $535 million in assets into Anchor Protocol, but the LUNA incident caused almost no losses to Celsius. This means that Celsius has escaped before the US collapse. And this amount of funds undoubtedly accelerated the collapse of UST; this behavior severely damaged the confidence of the market, which also caused the public’s distrust of Celsius.

As a result, since the discouragement of UST, a lot of funds have accelerated the evacuation of Celsius. From May 6th to 14th, Celsius lost more than $ 750 million in funds.

Further reading:Celsius suspends withdrawals, exchanges, and transfers! Transfer 300 million Mg BTC ETH to FTX

However, the house leak happened to rain overnight, and the two previous theft incidents of Celsius were also exposed and fermented:

1. Lose 35,000 ETH on Stakehound

On June 22, 2021, Ethereum 2.0 staking solution company Stakehound announced that it had lost the private keys to over 38,000 ETH deposited on behalf of clients. After analysis of the addresses on the chain, 35,000 of them belonged to Celsius, but Celsius has been concealing the incident.

2. BadgerDAO Hacker Loses $50M

In December 2021, BadgerDAO was hacked and lost $120.3 million, of which more than $50 million was confirmed to come from Celsius, including about 2,100 BTC and 151 ETH.

In fact, objectively speaking, the loss of this amount alone is far from defeating Celsius’s balance sheet. But Celsius’ performance seems to be too labored. As for why, let’s look at a few sets of data.

In June 2021, Celsius Network announced a $200 million investment in Bitcoin mining, including the purchase of equipment and the acquisition of a stake in Core Scientific. In November 2021, Celsius reinvested $300 million in bitcoin mining operations, bringing the total investment to $500 million. In May 2022, Celsius Mining, a wholly-owned company of Celsius, confidentially submitted a draft FormS-1 (Registration of Stock Listing Application) registration statement to the U.S. Securities and Exchange Commission (SEC) to start the listing journey.

As we all know, mining is an investment project with heavy assets, high expenditures, and slow returns. If a large amount of money is invested (in fact, it is indispensable), it is difficult to achieve a quick return of capital in a short period of time. In the current volatile market environment, Celsius is undoubtedly too confident to invest a lot of money in mining, so it has encountered the problem of liquidity mismatch.

In addition to this, we also need to talk about the mechanics of Celsius. Celsius allows users to redeem assets at any time, but many assets are not liquid, so if a large number of depositors run, Celsius will not be able to meet the redemption demand.

In the face of the run-on shock, Celsius took a series of rude operations. It developed “HODL Mode” to prohibit users from withdrawn. Users need to submit a large number of documents and applications to relieve the model. This method seems to give Celsius time to react, but users are not fools. This is basically equivalent to telling investors that “we can’t stand it anymore”, which further exacerbates panic.

In order to deal with the withdrawal problem and obtain liquidity, on the one hand, Celsius sold BTC, ETH and other assets on a large scale, and on the other hand, mortgaged assets through DeFi protocols such as AAVE and Compound, and lent USDC and other stable coins.

Further reading:Suspected Three Arrows Capital address was liquidated by Compound to liquidate 11,000 ETH; Aave’s 210,000 ETH is in jeopardy

Further reading:MakerDAO urgently deactivates Aave DAI deposit module to prevent Celsius 464 million magnesium stETH liquidation risk

As of June 14th, Celsius had $594 million in collateral in AAVE, of which over $400 million was in stETH, with a total of $306 million in assets lent. There were more than 441 million US dollars of collateral on Compound with a liabilities of 225 million US dollars. On Maker, Celsius has $546 million in assets, of which $279 million is in liabilities.

But even such a large-scale mortgage lending is still difficult to alleviate the crisis facing Celsius. The decoupling of STETH and the continuous decline of ETH and BTCs have continued to decline, allowing it to increase asset mortgage, and at the same time, the demand for withdrawals will reduce its mobile assets. Therefore, CELSIUS has to take the ultimate means -prohibiting withdrawal, transaction and transfer.

As soon as this move, Celsius became the target of public criticism. Looking back at the whole process, it’s not hard to see that Celsius has stepped into a terrible vicious circle.

Unable to get high yields – Fund shortage – Liquidity mismatch – Run – Collateral assets – Price drop – Cover positions – Continue to fall – Continue to run… It is only a matter of time before the end of the catastrophe.

Three Arrows (3AC) Disaster

On June 15, 2022, the crypto market was set off by a tweet from Zhu Su, which stated:

“We are communicating with the relevant parties and working to resolve the issue.”

At first glance, this sentence sounds endless, but it is actually a response to a series of negative news about Three Arrows Capital circulating in the market. In fact, as early as June 14, rumors began to circulate that Three Arrows Capital was suspected of operating and repayment problems due to the slump in the market.

According to market sources, Three Arrows Capital has cooperated with Deribit, BlockFi and other institutions for loans. Currently, US$400 million has been liquidated, and the follow-up relationship is currently being dealt with with relevant units. In addition, Three Arrows Capital also reported many unconfirmed negative news earlier, such as being accused by clients of misappropriating client assets and being on the verge of bankruptcy.

Further reading:People familiar with the news broke the news of three arrows: uncomfortable debt is as high as $ 2 billion!Only 200 million current assets, misappropriation of customer funds is the norm

The report also stated that in early 2022, Sanjian Capital managed huge assets of more than $ 10 billion, but as the projects such as Avalanche, Polkadot, and ETH of their company’s projects fell In the event of major losses, its operations are also in trouble.

As for the above negative news, the Sanjian Capital did not make a clear response. Three Arrows Capital has been one of the most active capitals in the past bull market. It has participated in the Luna Foundation LFG and endorsed the Terra system with BTC reserves, and has built a large number of ETH positions in the past six months.

Under the downward trend of the market, these actions are intensifying speculation about the situation of Sanjian.

Based on multiple sources, the reason for the loss of key assets of Three Arrows Capital may lie in GBTC, stETH and LUNA.


According to public information, as of the end of 2020, Three Arrows Capital was the largest holder of Grayscale GBTC, holding 5.6168% of the GBTC share, with a market value of about $1.24 billion at that time. However, these positions have now been seriously shrunk due to factors such as falling currency prices and decoupling.

As we all know, GBTC does not support redemption and can only be sold through the secondary market. Therefore, if Three Arrows Capital plans to make up the Margin call (margin), it can only sell GBTC in a large amount at the secondary level.

But the Bitcoin drop may not be the most serious problem, more serious is that Three Arrows Capital seems to be using leverage to buy Bitcoin. According to crypto trader degentrading’s disclosure on his social networking site, Three Arrows Capital has lending positions with several mainstream lending platforms (such as BlockFi, Genesis, Nexo, Celsius, etc.). This means that if Three Arrows Capital is liquidated, its spread will be extremely extensive, and the crypto market may suffer another major blow.

2. stETH

The so-called “house leak happens overnight rain”, while the GBTC crisis broke out, stETH is not idle, and is facing a “decoupling” crisis recently. The recent problems of stETH mainly stem from revolving lending. The revolving lending model and the lack of liquidity have caused the price of stETH to drift away from ETH.

Three Arrows Capital seems to be using revolving borrowing and leverage, but the market decline has forced it to sell on a large scale. On-chain data shows that Three Arrows Capital is selling stETH through every account and seed investment address it owns.

According to trader MoonOverload’s summary on social networking sites, people tend to think that Celsius is the biggest stETH dumper, but that may not be the case. The source of the biggest sell-off is most likely Three Arrows Capital.

The timing of the two institutions is different. Most of the CELSIUS sells concentrated two weeks ago, while Sanjian Capital was sold last week. MoonoverLoad believes that most of these sells look like they want to repay their debts and borrowings.

Further reading:How serious is the risk of stETH when institutions withdraw from Lido and sell off?


As for LUNA (LUNC), there is no need to say much. Many views believe that the collapse of LUNA is an important reason for the problems encountered by Three Arrows Capital. FatMan, a member of the Terra Research Forum, said the $559.6 million that Three Arrows originally invested in has shrunk to $660. At the same time, the chain reaction of the Luna collapse also hurt Sanjian’s capital.

Crisis still lurking — BlockFi

On the morning of June 17, 2022, cryptocurrency analyst Otteroooo posted a detailed survey on the funding situation of CeFi giant BlockFi on his personal Twitter, and concluded that BlockFi is likely to fall into a liquidity crisis because of The platform has lost huge sums of money in a series of incidents including Celsius, Three Arrows Capital, SEC fines and more.

Next, we will introduce the results of OTTEROOOO.

1. The Collateral Effects of Celsius Thunder

Users of other CeFi platforms were also spooked after Celsius had liquidity issues and even faced a restructuring. Driven by panic, a large number of users would rather give up their income and redeem their assets from the centralized platform as soon as possible.

So in just one day, 2,000 BTC and 5,000 ETH flowed out of BlockFi wallets. For BlockFi, this will undoubtedly become the biggest challenge they will face.

2. The collapse of Three Arrows Capital

Three Arrows Capital, one of the largest hedge funds in the crypto space, was in an existential crisis within days. Three Arrows co-founder Su Zhu’s recent statement that “we are communicating with relevant parties and fully committed to solving the problem” can basically be understood as a bankruptcy signal.

The way of operation of Three Arrows Capital is to borrow funds from some large-scale CeFi institutions and then invest them in the market. The leveraged model can greatly amplify Three Arrows’ returns when the bet is in the right direction, but the problem can also dramatically worsen if the bet is in the wrong direction.

But this also means that when Three Arrows Capital is insolvent, it will no longer be able to repay the loans from CeFi institutions. This is the connection between BlockFi and Three Arrows Capital.

When asked by the market whether BlockFi had lent to Three Arrows Capital, the agency responded as follows:

It is our policy not to comment on whether an organization is a client of BlockFi. We can confirm that we have maintained a rigorous, prudent and proactive approach to risk management throughout our business flows, including managing the risks that may arise from any individual client.

This sentence almost equals nothing to say, but it gives the impression that it is prevarication, or even admits it in disguise. It can be estimated that if BlockFi does not respond positively, the credibility of the platform will be lost along with the rumors, and users will be shrouded in panic.

3. BlockFi’s wrong bet

Aside from some external connections, Blockfi’s own market judgment has also made mistakes.

BlockFi is the second largest holder of GBTC (Three Arrows is the largest). GBTC is a traditional financial product issued by Grayscale that can nominally correspond to BTC, mainly serving large funds in the traditional financial industry.

According to the current price of 1 BTC = 1.36 GBTC, there is a very obvious arbitrage opportunity here. BTC holders can exchange their 1 BTC for 1.36 GBTC, and then exchange back when the two return to parity, thereby obtaining 36% of the coins Standard income.

All this sounds good, but there is a small problem, that is, the model of GBTC belongs to the “pixiu disk”. Since GBTC is a traditional financial product, it will be regulated by the United States Securities and Exchange Commission (SEC). The SEC only allows BTC to be deposited in a trust in exchange for GBTC, but does not allow GBTC to be used to redeem BTC. A one-way channel.

In order to realize the function of free redemption, GBTC must be turned into another form of financial product (spot ETF). Grayscale has been lobbying the SEC for this, but so far there has been no progress.

Therefore, for BlockFi, there are currently only two ways to get rid of GBTC, one is to sell GBTC, and the other is to wait for the SEC’s attitude to change, adjust the positioning of GBTC to a spot ETF, and then open for redemption. But obviously both paths are not easy to go.

The first way, due to the huge discount of GBTC, you can only get back 71% of the value of BTC by selling it now;

The second way, if BlockFi has enough time, this is obviously an ideal choice, but when faced with the imminent liquidity crisis, BlockFi simply cannot wait, because users want to withdraw funds now, not wait An event that sees no progress at all.

So there is really only one way for BlockFi to sell GBTC, but doing so means the platform will lose further user funds. Under this situation, BlockFi seems to have fallen into a vicious circle similar to Celsius.

Further reading:The next unexploded bomb? Liquidity Crisis in Blockfi After Celsius, Three Arrows Capital, SEC Fines

4. SEC Fines

This year, Blockfi was charged with SEC and 32 states for selling cryptocurrency borrowing products to about 600,000 investors without registered. The end result was that Blockfi agreed to pay a $ 100 million fine to resolve the lawsuit. And that’s another sizeable asset loss.

Just two days ago, BlockFi announced that it would pay another settlement of $943,000 to the state of Iowa. Interestingly, BlockFi paid this small penalty in installments. Why does such a large institution need to pay in installments? This is thought provoking.

To sum up, the current situation is that the funds of BlockFi are trapped in GBTC, but the loan to Three Arrows Capital cannot be recovered (guessing), and the settlement with the SEC has cost more than 100 million US dollars, while most users are still in The rush to divest… is indeed a head-scratching situation.


The volume of our article today is relatively large, and we have sorted out the causes and consequences of several projects that have received relatively high attention recently. Looking at the integration of several events, in fact, it is not difficult to find that there is a thread between them – that is, de-bubble.

At the end of 21, the total market value of the encrypted market exceeded 3 trillion US dollars; the NFT market gained tens of billions of market value within a year: DeFi2.0, GameFi, SocialFi, Metaverse and other concept tracks emerge in an endless stream, and grow savagely… All this is evident, now The crypto market has accumulated too many bubbles, and the development of the crypto market in the past few years may indeed be too leap forward, and there will be some structural crises in such a market.

LUNA was destroyed by the outbreak of this crisis, and the destruction of LUNA also began to wake people up, shake the consensus, and shatter the dream. As a result, under the control of the big players in the market, the crypto world started a “de-bubble movement”.

As we can see, the crises of Celsius, Three Arrows Capital, and BlockFi are also in front of us one by one. And that may not be the end.

However, this series of events will also accelerate the process of the bear market to a certain extent, which may not necessarily be a bad thing for the entire market.

📍Related reports📍

Three Arrows Capital was unable to complete the “margin call” and was liquidated by Blockfi, and now sells another 14,000 stETH for emergency!

Multiple DeFi projects are recruited!It is said that the whereabouts of the funds placed on the Sanjian OTC platform are unknown

BlockFi pays “$100 million” fine to 32 U.S. states and SEC!Lending product BIA accused of violating securities laws

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