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Cryptocurrency Fund Three Arrows Capital took One Arrow too Many

  • Thought to be among the biggest holders of cryptocurrency in the world, the past few days have revealed forced liquidations and margin calls at 3AC, putting downwards pressure on an already embattled cryptocurrency market having to deal with rising interest rates.
  • Many protocols and projects which have raised millions of dollars from venture capitalists and other investors also need to manage their own treasury and instead of leaving their cryptocurrencies lying fallow, are said to have handed it to 3AC for management.

A vague tweet by a founder, swirling rumors of insolvency, documented evidence of ghosting, are just the latest development in the soap opera that is cryptocurrency trading with Three Arrows Capital, an influential trading firm thought to be insolvent.

Classifying Three Arrows Capital, or 3AC as it’s better known, is no mean feat.

On the one hand it isn’t a regulated fund, but it does perform treasury management for crypto clients. It’s a venture capital investor in a variety of projects, but it is also said to manage a substantial portion of its own money.

Which is why social media has struggled to categorize the multifaceted 3AC and why its possible insolvency is such a big deal.

Thought to be among the biggest holders of cryptocurrency in the world, the past few days have revealed forced liquidations and margin calls at 3AC, putting downwards pressure on an already embattled cryptocurrency market having to deal with rising interest rates.

As recently as March this year, data from blockchain analytics firm Nansen.ai suggested that 3AC may have been managing as much as US$10 billion in assets.

Of greater concern is that much of those assets were treasury assets.

Many protocols and projects which have raised millions of dollars from venture capitalists and other investors also need to manage their own treasury and instead of leaving their cryptocurrencies lying fallow, are said to have handed it to 3AC for management.

In some cases an 8% annual return was guaranteed and protocols would park their funds with 3AC, believing it to be safe because of the firm’s reputation in the market.

To that end, 3AC isn’t exactly like the overly-leveraged implosion of Archegos Capital Management because in that case, it was mainly Bill Hwang’s money from his family office.

According to allegations, 3AC took copious amounts of leverage betting big on cryptocurrencies at a time when the market was sinking rapidly because of macro factors beyond the control of anyone and sparking cascading liquidations.

3AC would have already been reeling from the implosion of TerraUSD and its sister token Luna, to which it had a large exposure to, where it had invested US$1 billion in a token saler earlier this year, a stake now estimated to be worth just over US$600.

Recent attention around 3AC however has come around staked Ether or stETH, a token offered by a decentralized finance app called Lido Finance that had widely been used in the market as the “equivalent” of regular Ether.

The stETH token is meant to be redeemable for Ether after a planned upgrade of the Ethereum network, with Lido Finance offering depositors an interest rate to lock up their Ether with the platform, but receiving stETH which they can then lend or trade on other platforms while waiting for the Ethereum upgrade.

But selling pressure caused stETH to depeg from its presumed 1:1 relationship with regular Ether, creating problems for users that use stETH in loans or other investments.

According to Nansen data, 3AC started actively withdrawing stETH from decentralized platforms as early as last month taking the haircut by swapping stETH for Ether in what appeared to be a warning of liquidity issues.

Complicating matters, there has been no shortage of allegations that 3AC is now ghosting its creditors, including protocols that had entrusted their treasuries to the firm for management.

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