A price crash, the collapse of key crypto projects, interconnected loans and the inability to repay debt have been key features of the latest downturn.
A margin call is a situation in which an investor has to commit more funds to avoid losses on a trade made with borrowed cash.At the heart of the recent turmoil in crypto assets is the exposure of numerous crypto firms to risky bets that were vulnerable to"attack," including terra, Sussex University's Alexander said.Celsius, a company that offered users yields of more than 18% for depositing their crypto with the firm,. Celsius acted sort of like a bank.
But when the downturn hit, this business model was put to the test. Celsius continues to face liquidity issues and has had to pause withdrawals to effectively stop the crypto version of a bank run. "Players seeking high yields exchanged fiat for crypto used the lending platforms as custodians, and then those platforms used the funds they raised to make highly risky investments – how else could they pay such high interest rates?," said Alexander.One problem that has become apparent lately is how much crypto companies relied on loans to one another.
Three Arrows Capital, or 3AC, is a Singapore crypto-focused hedge fund that has been one of the biggest victims of the market downturn. 3AC had exposure to luna and suffered losses after the collapse of UST . The reported last month that 3AC failed to meet a margin call from crypto lender BlockFi and had its positions liquidated.
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