Just recently in March, Three Arrows Capital managed about $ 10 billion in assets and became one of the world’s most prominent crypto hedge funds.
The company now also known as 3AC Headed to bankruptcy court After a plunge in cryptocurrency prices combined with a particularly risky trading strategy wipes out assets and makes it impossible to repay lenders.
The pain chain may have just begun. 3AC had a long list of counterparties, or at least companies that packed money into the capabilities of floating companies. The crypto market has fallen by more than $ 1 trillion since April, Bitcoin When EthereumInvestors who are betting heavily on companies like 3AC are suffering from the consequences.
Cryptographic exchange Blockchain.com Loans to 3AC are reportedly facing a $ 270 million blow..Meanwhile, Digital Asset Brokerage Voyager Digital Chapter 11 Applying for Bankruptcy Protection After 3AC failed to repay about $ 670 million I borrowed it from the company.US-based crypto lender Genesis and Block Fi, Cryptographic derivative platform Cryptographic exchange FTX with BitMEX We are also suffering from losses.
“Everyone is withdrawing liquidity from crypto lenders because credits have been destroyed, withdrawn, underwriting standards tightened and solvency tested,” said partner Nick Carter. increase. Castle Island VenturesFocuses on blockchain investment.
Three Arrows’ strategy involved borrowing money from the entire industry and investing that capital in other, often early crypto projects. The company has been around for 10 years and has helped founders Zhu Su and Kyle Davies to give a measure of reliability in the industry where beginners live.Zhu is also a popular co-sponsor Podcast About encryption.
“3AC was supposed to grow up in the room,” said Nick Bhatia, a professor of finance and business economics at the University of Southern California.
Attorneys representing 3AC’s creditors claim that Zhu and Davis have not begun to work together “in a meaningful way,” according to a court document reviewed by CNBC. Filing also claims that the clearing process has not started. This means that the lenders of the company have no cash to repay.
Zhu and Davies did not immediately respond to the request for comment.
The collapse of Three Arrows Capital could result from the May collapse of terraUSD (UST), which was one of the most popular US dollar peg stablecoin projects.
UST’s stability relies on a complex set of codes, and despite its promise to maintain its value despite broader crypto market volatility, there was little cash to back up the deal. Investors were given an incentive on an accompanying lending platform called Anchor, with an annual rate of return on UST holdings of 20%. The rate at which many analysts said it was unsustainable.
“Revision of risk assets and reduced liquidity have unveiled projects that promise unsustainable high APR, and projects such as UST have collapsed,” said Alkesh Shah, a global strategist for cryptocurrencies and digital assets. I am saying. Bank of America..
Panic selling and its sister token Luna, following the collapse of UST, cost investors $ 60 billion.
“The collapse of terraUSD and Luna is zero,” said Bhatia of USC, who published the book “Layered Money” on digital currencies last year. He described the meltdown as the first domino to fall into a “long nightmare chain of leverage and fraud.”
3AC told The Wall Street Journal It has invested $ 200 million in Luna. Other industry reports The fund’s exposure was about $ 560 million, he said.Whatever the loss, in the case of a stablecoin project, the investment has become virtually worthless. We’re screwed.
The UST implosion has shaken confidence in the sector and accelerated the already ongoing cryptocurrency slide as part of a broader withdrawal from risk.
3AC lenders demanded some cash back in the flood of margin calls, but the money wasn’t there. As a result, many of the company’s counterparties were unable to meet the demands of investors, including individual investors, who were promised a 20% annual return.
“Not only did they not hedge anything, but they also evaporated billions of dollars with creditor funds,” Batia said.
Blockchain.com CEO Peter Smith said in a letter to shareholders last week. Browse by CoinDesk, His company’s replacement “remains liquid, solvent and our customers are unaffected.” But investors have heard such feelings before — Voyager said the same A few days before filing for bankruptcy.
According to Batia, the Cascade has been severely exposed to asset deterioration and tight liquidity, hitting every player in the market. And because cryptocurrencies have little consumer protection, private investors don’t know what they will ultimately own.
Voyager Digital customers recently received an email stating that it will take some time before they can access the ciphers held in their account. CEO Stephen Ehrlich Said on twitter After the company goes through bankruptcy proceedings, customers who have cryptocurrencies in their accounts may receive some kind of grab bag.
This could include a combination of cryptocurrencies they held, reorganized common stock of Voyager, Voyager tokens, and earnings earned from 3AC. Voyager investors told CNBC that there wasn’t much optimism.