Breaking: Three Arrows Capital Dumps $33 Mln Staked Ethereum (stETH)

Crypto hedge fund Three Arrows on Tuesday swapped about $33 million worth of Lido Staked Ethereum (stETH) for Ethereum on DeFi platform Curve.

The move comes as stETH prices diverge further from ETH prices in secondary markets, pressuring traders using the DeFi token as collateral.

Three Arrows is the second major holder of stETH to dump the token since last week. Crypto trader Alameda Research had swapped about $1.5 billion of the token– all of its holdings- for ETH last week. stETH’s divergence from ETH can likely be tied to that trade, which also occurred on Curve.

The DeFi token is currently trading at $1,103.15, compared with ETH’s price of $1,173.96.

Three Arrows still has more stETH to dump

While the $33 million swapped by Three Arrows represents a substantial amount of the firm’s stETH holdings, Three Arrows still holds about $22 million of the token in one of its wallets, according to crypto commentator @mhonkasalo.

On-chain data shows Three Arrows has been consistently offloading stETH since the past month. The venture capital firm now appears to be transferring the ETH gained into lending pools on AAVE and Lido.

While it is unclear how much total exposure Three Arrows has to stETH, its recent transactions suggest the firm is trying to cull this exposure. But its swaps, along with Alameda, have contributed to a major imbalance in Curve’s stETH liquidity pool.

About 80% of the pool now consists of the token, which may present a further downside for prices.

How is Staked Ethereum affecting markets?

By itself, stETH has little impact on ETH prices, or the broader market. Even as its price drops in secondary trade, the token can still be redeemed for one ETH when the merge goes live.

But uncertainty over the token is causing panic selling of ETH, and other cryptos. Even worse, its use as a collateral by major crypto lending platforms, particularly Celsius, is threatening to liquidate billions in positions. 

Celsius faces a liquidity crunch due to the drop in stETH prices, which is affecting its leveraged position.