Three Arrows Capital (3AC) is currently experiencing liquidations of its positions, following difficulties in meeting margin calls. At the same time, we are seeing significant asset sales and a potential buyout by another company is even being considered.
3AC is facing a series of liquidations
Three Arrows Capital (3AC), the Singaporean cryptocurrency investment fund, is facing difficult days following liquidations. Indeed, several players in our ecosystem confirm or suggest that positions in the company have been cut, following unmet margin calls.
If we already mentioned this situation a few days ago, new elements have since emerged. The Wall Street Journal reported that 3AC has hired legal and financial advisors to help deal with the situation.
Among the options being considered to overcome the crisis, the company is considering both the sale of assets and a takeover by another company. Kyle Davies, co-founder of 3AC, admits the situation is critical, but hopes to find solutions:
“We’ve always been convinced about crypto and we still are. We are committed to solving problems and finding a fair solution for all stakeholders. “
According to our brethren at The Block, BitMEX announced that 3AC had suffered $6 million in liquidations on the platform. A similar situation has reportedly occurred on FTX, but no exact figures have been released.
On the other hand, Derebit, which offers cryptocurrency options trading, confirms that Three Arrows Capital has been a shareholder in the company since February 2020. It also insists that, even if some positions are potentially insolvent on the platform, this will not affect other clients’ funds. This would also apply even if none of these debts were to be repaid:
We can confirm that Three Arrows Capital is a shareholder of our parent company since February 2020.
– Deribit (@DeribitExchange) June 16, 2022
It is important to note that each company in the Three Arrows Capital account assures that contagion effect on their other clients is not on the agenda.
The analysis of addresses
The on-chain analysis work of Professor Chaîne, who works on our private group the Grille-Pain, has allowed us to highlight addresses belonging to 3AC, in addition to those already identified by the community. One of them shows us that emergency measures were taken a few days ago, in order to free up liquidity:
Mouvements sur l’adresse 0x3ba21b6477f48273f41d241aa3722ffb9e07e247
In chronological order, the red box shows the arrival of several thousand ETH, from two 3AC addresses. These ETH are then used to repay debt on the Aave protocol (AAVE) and liquidity is then withdrawn. Thus, the two Withdraw transactions in this box correspond to a total of 30,000 stETH.
We then come to the orange box. This shows us that these 30,000 stETH are exchanged at a loss for 28,340 ETH via 0x Protocol. This again pays off the debt on Aave and withdraws 39,500 stETH. Such transactions have been repeated regularly in recent days. They often involve amounts in the millions or tens of millions of dollars.
The evidence highlighted here illustrates the idea that the hedge fund has had to sell assets to cover losses. At the same time, it highlights the fact that 3AC is participating in the loss of parity between ETH and stETH, in order to overcome these liquidations. The spread between the two assets is currently about 6.2%.
These decisions to sell at a loss were made because the company could no longer honour the collateral needed to maintain its loans on platforms such as Aave or Compound (COMP). Given the noise in the crypto community, it is difficult at this time to sort out the real from the fake to establish an accurate loss inventory.
Other potential losses
There are also indications that 3AC has suffered liquidations on other platforms. But these claims should be treated with caution. Indeed, Zac Prince, for example, the CEO of BlockFi, publicly certifies the liquidation of a very important customer, but he does not reveal its identity at this time:
BlockFi’s risk management practices and systems allow us to act decisively to mitigate risk in accordance with our contracts. These actions may include margin calls and asset liquidation when appropriate.
– Zac Prince (@BlockFiZac) June 16, 2022
A similar statement was also made by Michael Moro, CEO of Genesis Trading:
1/While our policy is to never address specific client activity, we think it’s prudent to provide clarity and transparency to the market in times of great volatility and speculation. We want our counterparties and clients to know the following:
– Michael Moro (@michaelmoro) June 17, 2022
Again, Three Arrows Capital is not explicitly mentioned for confidentiality reasons. Therefore, we can only assume and not affirm that it is the company. Furthermore, BlockFi and Genesis Trading also stress that their clients’ funds are not affected by this case.
In order to establish an overview of the situation, Alex Svanevik, CEO of Nansen, a portfolio analysis platform, invites all entities with accounts with 3AC to come forward:
Keeping a tally of entities w/ liabilities against 3AC.
Feel free to DM if you were affected.
– Alex Svanevik (@ASvanevik) June 18, 2022
Under this Twitter conversation, we indeed find names that we have already mentioned in this article.
We also invite those concerned to contact us at this email address:
The crisis is putting many companies in difficulty. Thus, we see every day that this decline generates a kind of natural selection among the strategies that have been adopted so far. Some people will come out of this bear market stronger, but not everyone will come out of it stronger, and we’re going to see similar cases in the future.
