Arthur Hayes, founder of BitMEX, published an article today (1) to analyze the reasons for the market crash, saying that Three Arrows Capital adheres to the principle of traders’ arbitrage and does not pay attention to Terra risks, but the real breaking point lies in the centralized lending institutions that borrowed from Three Arrows Capital and did not do anything Risk Management. Hayes also compared it with decentralized lending protocols such as Aave, saying that the decentralized lending protocol can be said to have successfully survived this crisis, and each DAO made adjustments quickly based on the data on the transparent chain. (Recap:Arthur Hayes’ Opinion Full Text” discusses the UST death spiral in detail, reviews various stablecoins, and judges the future of the market) (background supplement:Blockchain.com, Deribit apply for liquidation of Three Arrows Capital; MAS: 3AC involved in illegal asset management)
Arthur Hayes, the founder of the cryptocurrency exchange BitMEX, published an article on his personal tribe today (1), analyzing the possible reasons for Three Arrows Capital and the market crash. Hayes mentioned that Zhu Su and Kyle Davies, the founders of Three Arrows Capital, were with him. Freshmen who graduated in the same year, met them as they traveled to the Asia-Pacific region to work as traders.
He said that Zhu Su is a skilled professional trader, engaged in trading in Hong Kong, Singapore and other Asia-Pacific markets, and was active in the NDF (forward currency contract product) market. He believes that the industry provides them with the opportunity to profit from arbitrage thinking. This strategy has also continued to the strategy of Three Arrows Capital. When they saw the prospect of the OTC NDF market and the inefficiency of prices, Zhu Su and Kyle Davies established Three Arrows Capital, which can be regarded as the cornerstone of the company before it became a giant whale.
But until the Terra system appeared, the 20% interest rate provided by Anchor provided considerable arbitrage space. Hayes believed that the Anchor system was subsidized and sponsored by the Luna Foundation, and constantly used funds to supplement the interest spread of the Anchor ecosystem. The purpose is to bet on the growth of the Terra ecosystem. So a crash after market volatility is to be expected.
But Hayes mentioned that professionally trained fund managers rarely stop to think about the feasibility of returns, and must act immediately when they see an arbitrage space, and he also mentioned the arbitrage policy implemented by Three Arrows Capital:
Borrow USD at less than 20% Convert USD to UST Deposit UST into Anchor, earn 20% Annualized Unrealized Profit = 20% – Borrowing Cost
Hayes also mentioned the image that Three Arrows Capital has actually created, because how much you can borrow depends on the amount of collateral and your voice, so Three Arrows Capital has leveraged borrowing-mortgage and re-borrowing to expand the managed fund to a large scale. With a management scale of $18 billion, Three Arrows Capital was able to obtain very generous loan terms from many companies, including unsecured 15,250 BTC and $350 million from Voyager.
Further reading:From the bottom” Three Arrows Capital’s $1 billion creditor Voyager: American customers are buying large deposits, most of which are unsecured loans
The real tipping point – opaque centralized lenders
Hayes cited the crypto lenders Voyager, Celsius, BlockFi, and Babel Finance that back Three Arrows Capital, essentially all trapped in the same risk profile, none of which has been properly risk-managed. Ironically, they are also opaque and trustless with each other, so that’s why when a crisis happens, they all go extinct at the same time.
Hayes briefly summarized the reasons for the market crash. Three Arrows Capital adopted a boring, stable and predictable arbitrage strategy, and used huge leverage to participate in Anchor. After Terra collapsed, it succumbed to the market, thus detonating the follow-up Voyager, Celsius, BlockFi and Centralized lender bombs like Babel Finance.
There is nothing innovative about how these centralized lenders go bankrupt, as long as there is a centralized lending business, there will be epic failures, and the technology that underpins cryptocurrencies and DeFi has nothing to do with 3AC and why these lenders are in trouble.
Clearly this is just the failure of a small group of risk-mismanaged financial institutions, let’s dig into how actual crypto and DeFi applications handle these market pressures.
DeFi lending protocols are improving
Hayes also mentioned at the end of the article that Defi lending protocols also played an important role in the collapse caused by this string of three arrows, including Compound (COMP), Aave (AAVE) and MakerDAO (MKR).
And at the time of the crisis, many lending protocols changed their tactics and even passed emergency proposals in a blazingly fast manner. You must know that the funds seen by these protocols in processing these payments are open and transparent. This is the biggest difference from the essence of centralized lending protocols. Decentralized communities often stipulate relatively conservative margin requirements. This is why these major Defi The reason why lending protocols will survive, he believes the new decentralized financial system has withstood the test.
Hayes also took this opportunity to say that if he had the opportunity, he would hold more COMP, AAVE and MKR tokens before the bear market.
In the event of a crisis, the protocol does not have to stop any withdrawals, continue to make loans, without any downtime. When you remove the crisis of trust from the mathematical equation and rely solely on transparent lending standards enforced by unbiased computer code, you get better results, and that’s a lesson for us to learn.
Zhu Su borrowed money to buy a “$50 million yacht” to show off his wealth? Voyager Digital borrowed over 650 million magnesium from Three Arrows Capital, and its stock price plummeted 60%
From the bottom” Three Arrows Capital’s $1 billion creditor Voyager: American customers are buying large deposits, most of which are unsecured loans
Arthur Hayes Opinion Full Text “Q’s Trap: Every country has a reason to reserve gold, but in the end it will be Bitcoin