Previously exposed to the collapse of the Terra ecosystem, and facing the current bear market environment, the famous cryptocurrency fund, Three Arrow Capital, is facing hundreds of millions of dollars in liquidations and could become insolvent. We take stock.
An insolvency risk for the Three Arrow Capital fund?
Towards an uncertain future. The well-known cryptocurrency fund, Three Arrow Capital, is facing insolvency after being liquidated by its lenders.
Among its risky bets, the investment firm includes the Deribit platform and BlockFi.
In total, Three Arrow Capital has faced hundreds of millions of dollars in liquidations. Sources put the amount as high as $400 million. Colin Wu, crypto reporter for Wu Blockchain, states:
“The address listed as Three Arrows Capital has a collateral position of 211,999.12aWETH (worth $235 million) on Aave V2 and total debt of $183 million in USDC and USDT. If the ETH falls towards $1014, the collateral position will be liquidated.”
In addition to this situation, the company is experiencing other setbacks regarding its investments in certain protocols. Indeed, projects such as Avalanche, Polkadot, or even Ethereum have seen the prices of their assets fall heavily in recent days. It should also be noted that the fund would have lost nearly 37 million dollars on the Bitfinex exchange this year.
To summarize how it got there, the investment company holds a number of ethers (ETH) valued at $235 million. With this deposit, it was able to borrow in stablecoin, from the AAVE platform, for $189 million.
The risk, in view of the bear market, is therefore to see a devaluation of the Ether cryptocurrency. In this case, the whole issue is to maintain a collateral level to avoid being liquidated by the lender. In other words, if the collateral becomes insufficient, the company will have to bail out its position. Otherwise, it will lose its position.
Co-founders committed “to solving this problem”
In light of the current situation, the company has communicated very little. However, Three Arrow Capital co-founder and current CEO Zhu Su said:
“We are in the process of communicating with the parties involved and are fully committed to resolving this issue.”
Furthermore, he backtracked on his supercycle and bullish phase statements, indicating that these theses were regrettably false. In this situation, the CEO’s statements may appear light and unreassuring, especially in the face of this insolvency risk.
In any case, the current situation of the fund raises questions and a domino effect could plunge the cryptocurrency ecosystem into an even more complex phase.
