3AC’s wave of liquidations

TL;DR Breakdown
  • Rumors have begun to circulate that Three Arrows Capital (3AC) may be on the verge of insolvency.
  • Finblox reduced its withdrawal limits by two-thirds following its connection to 3AC.

The collapse of the crypto market this week triggered unforeseen liquidations. Three Arrows Capital (3AC), a digital currency hedge fund, may be facing insolvency after losing a considerable amount of money in the aftermath of the Terra ecosystem crash. The value of the crypto fund holdings in Terra has dropped from $1 billion to less than $1,000.

With $400 million in liquidations, Singapore-based hedge fund 3AC is reportedly facing insolvency. According to reports, Crypto lender BlockFi liquidated some of Three Arrows Capital Capital’s positions. The company borrowed Bitcoin (BTC) from lender BlockFi but could not meet a margin call after the market turned sour earlier this week.

The crypto lender is not the only company that liquidated at least some of 3AC’s positions. Following the exposure, other platforms with ties to Three Arrows Capital have come forward to address the issue. Finblox, a platform offering users up to 90% yield on their cryptocurrency deposits, recently reduced its withdrawal limits by two-thirds and cited its relationship with 3AC as the reason.

3AC is said to have liquidated assets in a bid to pay off its creditors. According to a report by Dune Analytics, the firm has had “little contact with its counterparties since being liquidated.

The hedge fund has a $372 million portfolio allocation and held tokens such as AAVE, BAT, CEL, FTT, GUSD, LIDO, and LINK as well as $166 million USDC tokens. Serum (SRM), the second-largest commitment at $46.3 million, is also listed among Three Arrows’ holdings.

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The firm’s outspoken co-founder, Su Zhu, commented cryptically on the situation–but declined to comment any further. The hedge fund is yet to issue an official statement about the prospect of going bankrupt.

Cryptocurrency market’s downward spiral

Three Arrows Capital could become the latest casualty of the cryptocurrency bear market. Presently rumors swirl that it is struggling to stay afloat after suffering losses related to recent price declines among bitcoin and other altcoins.

The hedge fund has been hit by the recent turmoil in the crypto sector, which saw Bitcoin (BTC) prices fall to $20,205 before recovering slightly over. Additionally, this week’s mass liquidations appear to have been triggered by the collapse of Ether (ETH), which plummeted toward $1,000 on its way to a six-month low. Rumor has it that 3AC’s exposure to synthetic assets, such as the Grayscale Bitcoin Trust (GBTC) and Lido’s Staked ETH (stETH), also played a role in these events.

3AC troubles continue

One of the company’s business partners, 8BlocksCapital, has accused Three Arrows Capital of misappropriating nearly $1 million of its funds.

A couple of months ago, market maker 8BlocksCapital entered into an agreement with 3AC, allowing the latter to use its trading accounts. The agreement stipulated that 8BlocksCapital can withdraw its funds at any time. It was also agreed that the company is entitled to 100% of the profits. 3AC was also not allowed to move the funds without the permission of 8BlocksCapital. In exchange for this arrangement, 3AC receives trading fees from 8BlocksCapital.

Danny Yuan, CEO of market maker 8BlocksCapital, said on Twitter that its agreement with Three Arrows Capital was that it could withdraw from the firm whenever it wanted. However, he alleges that 3AC used $1 million of its funds to meet margin calls and claims that 3AC still has assets on other platforms. He calls for those platforms to freeze the assets.

The current liquidation news surprises many industry insiders who were expecting 3AC’s success to continue into the future. However, the company’s losses are not unique among crypto lenders. 

Nellius Irene

Nellius Irene

Nellius Irene is a cryptocurrency investor and journalist who has been in the nascent space since 2018. She has researched and written on several crypto-related topics including non-fungible tokens (NFTs), decentralized finance (DeFi), fundraising, mining, etc. Her major focus is covering regulatory events that are capable of shaping the entire crypto ecosystem.

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