Is Crypto Falling Apart? Weekly Newsletter 6/19/2022

Is crypto crashing? This week we highlight some major events as Celsius and Three Arrow Capital face insolvency for their over-leveraged plays!

Is Crypto Falling Apart? Weekly Newsletter 6/19/2022
If you like learning about Web3, Crypto, NFTs, and Tech, subscribe to our free weekly newsletter! And if you haven't yet, follow me on Twitter!

gm friends. Other than getting destroyed by the markets, here's some things that just minted👇

  • 📉 Celsius explained
  • 🚨 3AC facing insolvency
  • 📲 Onboard - the decentralized Web3 social media platform we've been waiting for
  • 🧵 The Ultimate Crypto Economics Thread

Celsius Explained

Crypto is crashing. We saw the collapse of Terra/Luna last month, and now we saw the $10B collapse of Celsius, a DeFi lending platform. What caused the collapse?

Similar to the collapse of Terra, Celsius had promised high yields, 6-8% interest, through staking awards from the Proof-of-Stake Ethereum Beacon. Staking ETH on the actual chain only provides ~4.2% returns, so how does Celsius give ~8%?

Well, through on-chain collateralized lending protocols such as MakerDAO and an ETH derivative called liquid staked ETH ($stETH). With MakerDAO, Celsius can leverage assets (customer funds) and then lend, stake, and trade $stETH.

$stETH should earn more yield than standard ETH because of the natural yield attachments. It also should be pegged 1:1 through arbitrage traders. But you can only redeem ETH for $stETH and cannot redeem $stETH for ETH until The Merge (Ethereum moving to POS). A few days ago, $stETH depegged and was trading at 0.94 ETH.

So here's the problem. Celsius uses customer funds and leveraged assets to gamble and are left with a ton of liquid-staked ETH and debt. The price of $stETH is falling and they need to repay the loans (since users want their funds back). $stETH staked gains are locked until the Merge, and the price is lower than the Ethereum they originally deposited.

In other words, they're insolvent and unable to repay loans. Unfortunately, withdrawals were paused to avoid further insolvency and customer funds are locked out of reach.

Ok, what happened to 3AC?

If you thought what happened to Celsius was bad for crypto, things just got even worse. One of the largest crypto VC firms, Three Arrows Capital, faced insolvency this last week.

To summarize what happened, 3AC borrowed assets and had a series of long positions (things they expected to go up in the future). They took on hundreds of millions of dollars of loans from major lenders (FTX, Celsius, BlockFi, etc) and even held a 9-figure position in $LUNA.

With the current market conditions, 3AC was getting margin-called. This means 3AC would have to increase its funds or sell its assets.

Rumors of liquidation, companies pausing reward distributions due to volatility, and a potential market dump for 3AC's token allocation could come next. Here are some of the assets that could be affected in the upcoming unlocks:

There's a common trait between Celsius and 3AC. They both over-leveraged (borrow capital) and made greedy, risky bets. If there's one thing we need to learn from this bear cycle, it's that we need further educate ourselves and not be blinded by high, unrealistic returns.

Hello Onboard

Onboard, a decentralized social media application just launched a demo and a signup form for their private beta. But what stands out from this project is that it's built on top of Lens Protocol, a Web3 social graph platform that builds upon the idea that each user is an NFT.

Now, why is this interesting? Well, let's see the problem with today's social media. The first issue is that the timeline can change and away from your preference. Take Facebook, for example, a platform which I used to scroll down the News Feed endlessly no longer shows me relevant information. Onboard is open-source and would ideally retain the timeline of your preference.

The other issue is that we have different accounts for every platform. With Lens, our social profile lives on the Polygon blockchain and is transferrable across every application. Don't like the UI or the features of Onboard? Well, we can easily swap to a different platform!

Take a peak at the thread below!

🧵 The Ultimate Crypto Economics Thread

If there was one long Twitter thread that could you teach everything about crypto-economics from zero to hero, well, I guess here it is by Tascha Labs. It might be an hour-long, but it's well worth reading!

📝 What else just minted in Web3 - Our curated list

Web3 products and news

NFT projects and updates

If you like learning about Web3, Crypto, NFTs, and Tech, subscribe to our free weekly newsletter! And if you haven't yet, follow me on Twitter!

Disclaimer: None of this is financial advice. This newsletter is strictly educational and is not investment advice. We are not registered investment brokers or dealers. Trading crypto-related assets are extremely risky. Please be careful and do your own research.

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