- A trader increased a bet by almost $21 million on Bitcoin outperforming Ethereum, bringing the total position size to $118 million.
- By depositing wBTC and borrowing Ether through Aave, the trader’s position profits from declines in Ether’s value against Bitcoin, a strategy reflecting a bearish outlook on Ethereum.
- The trader could also be using the borrowed Ether for other purposes, like speculating on assets, hedging, or earning interest.
A trader added almost $21 million to a short position that pays off when Bitcoin outperforms Ethereum.
The trade, which was executed via the DeFi protocol Aave brought the total position to $118 million on April 3.
Aave is an open source and non-custodial lending protocol that enables users to deposit one crypto asset and borrow another against it.
According to Llamafolio, an onchain wallet tracking tool, the user now has 2,648 wBTC deposited, around $180 million, and is borrowing 35,894 Ether, about $118 million.
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The wallet has been labelled by Nansen, a blockchain analytics platform, as belonging to Multicoin Capital, which did not respond to DL News’ request for comment.
wBTC is a token on the Ethereum blockchain that is backed one-to-one by Bitcoin.
The wallet was originally funded on December 19 with a test transaction, where a user sends small amounts of crypto to the wallet to ensure control.
On December 20, while Bitcoin was around $43,000, the wallet received 1,100 wBTC and 997 wBTC, around $91 million.
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They went on to deposit 1,822 wBTC into Aave and borrowed 22,130 Ether, around $48 million.
This strategy, depositing wBTC and borrowing Ether against it, is effectively a short position on Ether relative to Bitcoin.
This is because if the value of Ether falls relative to Bitcoin, the user can then repay the Ether they borrowed at a lower value.
Since adding to the position April 3, Ether has fallen 3% relative to Bitcoin, meaning the bet is paying off so far.
On the other hand, if the value of Ether increases relative to the price of Bitcoin, the user can be liquidated.
The position’s so-called health factor, which indicates how close a position is to facing liquidation, currently stands at 1.19, which is considered low-risk. Liquidation is initiated when the health factor dips to 1.
This factor is calculated based on the risk parameters for each wallet, where the total borrowed amounts are divided by the sum of each type of collateral adjusted by its respective liquidation threshold.
In other words, if the price of Ether were to significantly increase relative to Bitcoin, it would elevate the risk of reaching a health factor below 1, thereby triggering a liquidation event to ensure the platform’s solvency.
As in any position, shorting Ether may not be the trader’s ultimate goal. The wallet could be using the Ether to speculate on other assets, hedge risk, earn interest, or earn points offered by protocols.
All of the Ether borrowed by the trader was sent to centralised exchange Coinbase, obscuring the trade.
Ryan Celaj is a data correspondent at DL News. Got a tip? Email him at ryan@dlnews.com.
