Three Arrows Capital: Is The Crypto-Based Hedge Fund Headed Towards Insolvency?

The cryptosphere can’t seem to catch a break. This week, Singapore-based Three Arrows Capital or 3AC has reportedly been liquidated by its lenders and may be facing insolvency.

In a report by The Block that cites “well-placed sources,” 3AC “is in the process of figuring out how to repay lenders and other counter-parties after it was liquidated by top tier lending firms in the space.”

According to these sources, the liquidation sums up to at least US$400 million. They also said that 3AC has “maintained limited contact with its counter-parties since being liquidated.”

CEO and co-founder Zhu Su, who has not issued an official statement to address the matter, posted a vague tweet that seemingly confirms the rumors on Tuesday. He said that they are in the process of “communicating with relevant parties” and are “fully committed to working this out,” but did not go into further detail.

We are in the process of communicating with relevant parties and fully committed to working this out

— Zhu Su 🔺 (@zhusu) June 15, 2022

The speculation was triggered by blockchain data picked up by crypto traders and analysts on social media. They saw how wallets associated with 3AC dumped at least 30,000 stETH.

people think Celsius is the biggest stETH dumper but its 3AC and it isnt relatively close, they are dumping on every account and seed round address they have, most looks like its going to payback debts and outstanding borrows they have pic.twitter.com/9bZnmTXQzj

— moon (@MoonOverlord) June 14, 2022

It’s also been reported that 3AC was withdrawing stETH from decentralized platforms during the collapse of TerraUSD. 3AC heavily invested in LUNA and sustained significant losses when the Terra ecosystem fell last month.

Began around a month ago during LUNA fiasco when stETH "depegged" to 0.94 and 3AC pulled 127k stETH in liquidity from Curve ($246m at the time). https://t.co/cvRriBJynh

They have been in and out of AAVE, wstETH, etc until the selling began this week pic.twitter.com/IO7ZmfVr5W

— DeFiyst (@DeFiyst) June 14, 2022

Additionally, crypto analyst Onchain Wizard reports that 3AC could have about $300M liquidated on Aave and Compound if the price of Ethereum goes to $1,042.

This wallet (tagged as 3AC on Nansen) has been aggressively paying back AAVE debt against its 223k ETH / $264mm position to avoid liquidation. With $198mm in borrowings against it, @ a 85% liq threshold, a -11% move in ETH to $1,042 liqudates ithttps://t.co/y7yJJ0NlMc pic.twitter.com/2S55Rzl9Xc

— Onchain Wizard (@OnChainWizard) June 15, 2022

3AC is one of the world’s biggest crypto holders. If they do head towards insolvency, it would be more bad news for the crypto market as a whole.

Earlier this month, Mike Novogratz, founder & CEO of Galaxy Digital Holdings Ltd., said two-thirds of crypto-based hedge funds like 3AC will fail as a consequence of the current market downturn.

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Information for this briefing was found via The Block and the sources mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.