Asymmetries - FS Insight
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Dec 16, 2022 • 11 Min Read

DCG Update

Leverage Unwind Recap

Clearly, the most challenging part of analyzing cryptoassets this year has been the opaque parts – the lending, borrowing, trading, and siphoning of assets that have occurred off-chain.

This year, we have seen a deleveraging event throughout the global crypto market spurred on by the centralized elements of crypto. First, we saw the de-pegging of UST and the incineration of $50 billion in market value with the downfall of LUNA.

Sure, this was technically an on-chain failure, but a significant portion of the capital locked in the Anchor Protocol was from centralized yield providers, which took retail money and either directly or indirectly were harvesting yield from this Anchor application. Further, many funds that locked capital into Anchor were clearly leveraged on their LUNA/UST positions. This is the reason that we witnessed additional fallout from the unwind of 3AC shortly after the LUNA unwind.

Then, in what seemed to be the final shoe to fall, FTX was revealed to have been cosplaying as a solvent exchange and Alameda as an outperforming hedge fund, only to be found to have papered over similarly excessive losses seemingly incurred throughout the previous 12 months. Their downfall (which was, by the way, only discovered due ...

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