The court action followed lawsuits from several creditors over its failure to pay debts. Those creditors included Voyager Digital, who reduced their platform's withdrawal limit after reporting their exposure to 3AC, as well as the crypto exchange Deribit.
Three Arrows Capital ordered to liquidate
A court in the British Virgin Islands ordered the liquidation of Three Arrows Capital, a crypto hedge fund. This follows initial rumors in mid-June that the firm was insolvent, then a report shortly after that the group was looking at options including asset selloff or a buyout.
- "Crypto Hedge Fund Three Arrows Ordered by Court to Liquidate", Wall Street Journal
Voyager Digital reduces withdrawal limit after reporting $660 million exposure to Three Arrows Capital
Voyager Digital disclosed that they had loaned $350 million in stablecoins and 15,250 Bitcoin (around $310 million) to Three Arrows Capital, a crypto hedge fund that could not meet its margin calls amidst a crypto downturn and the failure of large projects like Terra. Voyager asked 3AC to repay the loan, but reported they were "unable to assess at this point the amount it will be able to recover". They did not disclose whether they held collateral for the loan. After the announcement, shares of the publicly-traded company plummeted more than 60%.
Later that day, Voyager reduced the daily withdrawal limit from $25,000 to $10,000, suggesting they were having trouble meeting customer demand for withdrawals.
The prior week, Voyager announced they had secured a line of credit from Alameda Research amounting to $200 million in cash and 15,000 Bitcoin. Alameda Research is a trading firm founded by Sam Bankman-Fried, who also runs the FTX crypto exchange.
Sam Bankman-Fried performs second bailout, loaning $250 million to BlockFi
Crypto exchange FTX loaned $250 million to BlockFi, a crypto lending platform that recently announced 20% layoffs as they struggled to weather the crypto downturn. BlockFi also had loaned funds to Three Arrows Capital, an insolvent crypto hedge fund, although they claim to have successfully liquidated 3AC's positions.
The FTX loan represents the second bailout of a crypto firm by Sam Bankman-Fried's companies, after his Alameda Research trading firm extended credit equivalent to around $485 million to floundering crypto platform Voyager.
- "Crypto exchange FTX bails out lending platform BlockFi", Financial Times
Defi insurer Bancor pauses their impermanent loss protection due to "hostile market conditions"
The defi insurance protocol Bancor announced on June 19 that they would be suspending their impermanent loss protection due to "hostile market conditions". The feature sought to protect users from "impermanent loss", a risk when a person provides liquidity to a pool, the ratio of deposited assets changes, and the person winds up with more of the token that's worth less.
Bancor wrote in their announcement that "Withdrawals performed during this unstable period will not be eligible for IL protection. Users who remain in the protocol will continue earning yields and be entitled to withdraw their fully-protected value when IL protection is reactivated." Many view this as Bancor holding their crypto hostage, because they would take a major loss if they withdrew while IL protection was paused.
The post goes on to say that "two large centralized entities" (likely Celsius and Three Arrows Capital) have rapidly liquidated their $BNT positions and withdrawn a large amount of liquidity; Bancor also wrote that another entity has opened a large short against $BNT.
- "Market Conditions Update — June 19, 2022", Bancor blog
Three Arrows Capital looks for a bailout
The Wall Street Journal reported that Three Arrows Capital, a crypto hedge fund that was rumored to be insolvent several days earlier, was indeed pursuing last-ditch options to make good on their debts. 3AC had major exposure to Luna, a token that plunged in value during the collapse of the Terra ecosystem in May, and lost around $200 million in that catastrophe. The collapse of other projects and the plummeting prices of cryptocurrencies in general exacerbated 3AC's situation, causing them to take losses in other risky plays they had made, and ending with them unable to pay off debts to creditors.
According to the WSJ, 3AC has hired legal and financial advisors to pursue solutions including asset selloffs or rescue by another firm, and is trying to extend the deadlines for outstanding debt repayments.
- "Crypto Hedge Fund Three Arrows Capital Considers Asset Sales, Bailout", Wall Street Journal
8 Blocks Capital calls on platforms to freeze Three Arrows Capital's funds after the firm goes silent
8 Blocks Capital is a Hong Kong-based trading firm. In a Twitter thread, Danny Yuan explained that 8BC had been using 3AC's trading accounts to reduce their trading fees. He wrote, "We had known them since 2018, thought they were competent and didn't think they were degen enough to lose billions and not employ basic risk management."
When 8BC contacted 3AC to make a withdrawal on June 13, they never received a reply. "We didn't think much of it at the time. After a while, the market stablized so we no longer needed the funds. We thought maybe they were just busy." The following day, 8BC noticed $1 million missing from their accounts. When they tried to contact 3AC, they again received no response.
According to Yuan, "What we learned is that they were leveraged long everywhere and were getting margin-called. Instead of answering the margin calls, they ghosted everyone." He called on platforms that still have assets from 3AC to freeze those assets, "so that those who 3AC owes can be paid back in the future after legal proceedings."
Three Arrows Capital crypto hedge fund may be insolvent
Blockchain data showed that Three Arrows Capital (3AC), a crypto-focused hedge fund based in Singapore, appeared to be dumping stETH as quickly as possible. stETH is Lido-staked Ethereum, a project that is facing liquidity issues and deviating from its peg as of late. The sales appear to be 3AC selling off stETH to pay off debts, presumably due to margin calls as the crypto ecosystem as a whole fell dramatically.
Making matters worse, 3AC co-founder Su Zhu tweeted during the mass sell-off to promote stETH, which certainly gives the appearance that he was trying to pump the price to improve price or liquidity. BlockFi later confirmed that they had liquidated some positions that 3AC held with them.
Speculation about 3AC has swirled, with little comment from 3AC or its executives besides a June 14 tweet from Zhu: "We are in the process of communicating with relevant parties and fully committed to working this out". Meanwhile, other organizations including 8 Blocks Capital have reported that they've been unable to reach 3AC about money they're owed.