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Crypto hedge fund Three Arrows Capital faces liquidation

Jun 15, 2022
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Illustration: Allie Carl/Axios

Crypto hedge fund Three Arrows Capital (3AC) is liquidating assets and in the process of figuring out how to repay lenders, according to reports.

Why it matters: The dominoes are starting to fall, as some companies and investors who made risky bets on unregulated crypto markets are having their bills come due.

Driving the news: Several top-tier lending firms have liquidated at least $400 million from 3AC, The Block reports.

  • The liquidation comes as 3AC has seen the price of several investments — including avalanche, polkadot, and ether — fall dramatically over the last several weeks.

What they’re saying: "We are in the process of communicating with relevant parties and fully committed to working this out," 3AC founder Zhu Su tweeted Tuesday evening.

Flashback: 3AC was one of the more prominent investors in Luna and TerraUSD (UST) before their collapse.

  • In February, it was part of a group of investors that swapped bitcoin for $1 billion worth of Luna tokens to act as a backstop for UST in case it lost its peg.
  • In May, it swapped another $500 million worth of bitcoin for UST in an over-the-counter transaction.
  • The latter deal was announced just one week before UST was knocked off its dollar peg and entered its death spiral.

Yes, but: What really appears to have done 3AC in was a massive exposure to staked ether (stETH), a token issued by DeFi lender Lido Finance.

  • In theory, stETH is meant to be redeemable for the same amount of ETH; however, due to a lack of liquidity in the market, 3AC was forced to sell at a discount to cover some of its other liabilities.
  • On Tuesday, it withdrew more than 80,000 stETH from decentralized lender Aave and then swapped 38,900 of the stETH for 36,700 ether, according to industry tracker Nansen.

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