Three Arrows Capital (3AC), one of the largest Bitcoin and altcoin venture capital firms, is on the verge of bankruptcy as it grapples with asset sales and recovery efforts. The latest state of 3AC ties into everything that is happening in the crypto space, starting with the collapse of the Terra ecosystem. Here’s what you need to know about bankruptcy risk and 3AC…
What’s in Three Arrows Capital’s altcoin portfolio?
As we reported on Kriptokoin.com , Three Arrows Capital was once one of the largest VC funds. For example, it managed more than $18 billion in total assets under management. Some of his major investments are Ethereum (ETH), Near Protocol (NEAR) and Avalanche. Apart from these; The following coins are also in the company’s portfolio, as research firm Messari has compiled:
- Polkadot (DOT)
- Uniswap (UNI)
- AAVE (AAVE)
- Compound (COMP)
- Synthetix Network (SNX)
- yearn.finance (YFI)
- Balancer (BAL)
- WOO Network (WOO)
- Hxro (HXRO)
- Perpetual Protocol (PERP)
- DODO (DODO)
- KeeperDAO (ROOK)
- mStable Governance Token (MTA)
- dHEDGE (DHT)
- Kyber Network (KNC)
What led to 3AC’s bankruptcy risks?
Earlier this month, after the Celsius Networks incident, doubts began to arise about 3AC’s leverage positions. Crypto venture capital firm Three Arrows Capital (3AC) has announced that they have invested $245 million in Ethereum (ETH) on the Aave protocol. The company used these deposits to borrow $189 million in USDC and USDT. Thus, it increased the loan-to-value ratio to 77 percent. Due to the illiquidity of these altcoin projects, 3AC was unable to add collateral, as they were locked. Then, he could not pay the debt. This caused a massive cascade of purges. As the market began to crash, this overuse of leverage left 3AC exposed.
Things went from bad to worse as reports revealed that 3AC has long been used as leverage everywhere. This resulted in a huge increase in margin calls. The bad thing was that 3AC did not respond to these rumors. As liquidity issues worsened, 3AC; Sold over 60,000 staked ETH (stETH). Zhu Su, founder of Three Arrows Capital, stated that they are fully committed to solving this. He said that they are currently in talks with the relevant parties.
Bankruptcy and LUNA collapse
Popular crypto analyst Miles Deutscher explains that the bankruptcy of 3ACs could be directly tied to the collapse of LUNA and UST. He adds that Three Arrows Capital has received money from investors and invested it in Anchor Protocol. Allegedly, the company used counter funds to create a large UST position on Anchor Protocol without actually notifying investors. Reportedly, the VC firm has purchased the locked LUNA for $560 million. Its value dropped to $600 after the LUNA crash. These massive losses have caused 3AC to further increase its appetite for leverage.
The risks of bankruptcy for Three Arrows Capital could be a disaster for the entire crypto group. 3AC has taken out loans from almost every major lender including Celsius, FTX, BlockFi, BitMEX and Nexo. Should 3AC default on their loans, these lenders could take a big hit. So it can start a domino effect. Popular analyst Miles Deutscher explains:
Unfortunately, the size of 3AC’s loans creates more problems than a typical borrower. If you get a $100,000 loan from a lender, you’re screwed. If you borrow $100 million from a lender, the lender is screwed. Unfortunately, a mix of poor risk management, greed and recklessness led to bankruptcy with serious consequences for the entire field.
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