Flows of Ether Offshoot Reveal Terra’s Ripple Effect on Crypto
The contagion that spread from the implosion of the Terra cryptocurrency ecosystem to Celsius Network and Three Arrows Capital bears similarities to the 2008 global financial crisis.
A new report by blockchain data analytics firm Nansen found that the impact of the collapse of Terra’s algorithmic stablecoin TerraUSD in May can be determined by tracking stETH, a token that became a popular collateral asset for lending and borrowing in decentralized finance.
It’s a ripple effect similar to what happened during the Great Recession, when the financial system fell into turmoil as hedge funds and investment banks were forced to unwind leverage and sell assets as Wall Street rushed to shore up its capital positions.
Celsius and Three Arrows were major holders of stETH, which represents staked Ether on the Ethereum blockchain, according to the report released on Wednesday. Three Arrows was reported to have been ordered this week to liquidate.
“3AC/Celsius is like Bear Stearns/Lehman,” said Tarun Chitra, chief executive officer of crypto risk-modeling platform Gauntlet Network, comparing the two crypto companies to the investment banks that collapsed during the 2008 financial crisis.
While Nansen’s analysis shows that Celsius and Three Arrows were not the top sellers of stETH initially, as the overall crypto market crashed both entities and potentially others became forced sellers of stETH tokens, which were already relatively illiquid on their main trading venue Curve Finance.
Celsius and Three Arrows did not reply to a request for comment for this story.
Before Terra’s meltdown in May, stETH was turned into bETH, or bonded Ether, on the Terra blockchain to earn rewards paid in TerraUSD. And as TerraUSD started to fail to keep
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