According to blockchain analytics platform Nansen, since pausing withdrawals Celsius has dramatically improved the health ratio of its on-chain positions. Furthermore, Nansen said the crypto hedge fund Three Arrows Capital (3AC) was the victim of the contagion.
Citing extreme market conditions, Celsius Network paused user withdrawals, swaps, and transfers between accounts on June 12. Subsequently, the crypto lender started to top up collaterals and repay loans to maintain a healthy loan-to-value (LTV) ratio.
Between June 8 and 17, Celsius Network was busy transferring funds between different wallets. Also, the firm was depositing large amounts of staked Ethereum (stETH) to crypto exchange FTX. According to the data compiled by Nansen, Celsius' activity presumably signaled an over-the-counter (OTC) deal.
As a result, the crypto lender was able to exchange its illiquid stETH for more liquid assets. Meanwhile, Celsius also protected the leveraged assets by paying down debt, thus improving the health ratio of its on-chain positions.
"For now, their health ratio is still decent in the context of things, as long as there isn't a sudden downward swing of >30% in prices of their collateral," Nansen stated in a report. "Pausing withdrawals probably helped to prevent a bank run while providing Celsius time to recalibrate and manage the risks in their investments."
Specifically, Celsius' LTV ratio stands at 1.56 on Aave (AAVE). That means prices need to drop more than 36% to be in trouble. Similarly, the ratio is 1.39 on Compound (COMP), meaning prices need to fall over 28% for Celsius to get liquidated.
Three Arrows Capital Was a Victim
Moreover, Nansen's report revealed that 3AC was likely a "victim" of the contagion. In this case, contagion is the spread of crisis from one protocol (Terra) to others (such as 3AC).
3AC had to dump its stETH holdings at steep discounts to shore up finances and top up collateral as prices plunged. On-chain data shows that 3AC started selling off its stETH holdings between June 13 and 14, when stETH dipped to as low as ETH 0.933.
Historically, stETH has been traded roughly at par with ETH. But the recent market crash forced some of the biggest holders to exchange their stETH for more liquid assets. Therefore, it adversely affected the price of stETH.