Trader piles $118m into bet Bitcoin will outperform Ether

A trader significantly increased their short position by nearly $21 million, betting on Bitcoin to outperform Ethereum. This trade, facilitated through the decentralized finance (DeFi) protocol Aave, escalated the total position to $118 million as of April 3.

Aave, known for its open-source and non-custodial lending protocol, allows users to deposit one cryptocurrency asset and borrow another against it. According to Llamafolio, a tool tracking on-chain wallets, the trader has deposited 2,648 wrapped Bitcoin (wBTC), equivalent to around $180 million, and borrowed 35,894 Ether, approximately $118 million.

The wallet associated with this transaction has been identified by Nansen, a blockchain analytics platform, as belonging to Multicoin Capital, although Multicoin Capital did not respond to inquiries from DL News.

wBTC represents a token on the Ethereum blockchain backed one-to-one by Bitcoin. Initially funded with a test transaction on December 19, the wallet received substantial amounts of wBTC on December 20, totaling around $91 million when Bitcoin was valued at approximately $43,000.

Subsequently, the trader deposited 1,822 wBTC into Aave, borrowing 22,130 Ether, valued at around $48 million. This strategy, known as depositing wBTC and borrowing Ether against it, effectively establishes a short position on Ether relative to Bitcoin. If the value of Ether declines in comparison to Bitcoin, the trader can repay the borrowed Ether at a lower value.

Since bolstering the position on April 3, Ether has experienced a 3% decline relative to Bitcoin, resulting in a profitable outcome thus far. However, should the value of Ether increase relative to Bitcoin, the trader risks liquidation.

The position’s health factor, currently standing at 1.19, signifies a relatively low-risk level. Liquidation occurs when the health factor drops to 1, indicating a potential risk to the platform’s solvency. This factor is computed based on the risk parameters associated with each wallet, considering the total borrowed amounts in comparison to the sum of collateral adjusted by its respective liquidation threshold.

While shorting Ether may not be the trader’s sole objective, the borrowed Ether has been transferred to the centralized exchange Coinbase, concealing the trade’s specifics. This suggests potential utilization of the Ether for various purposes such as speculation on other assets, risk hedging, interest earning, or taking advantage of protocols’ incentives.