Crypto hedge fund 3 Arrows Capital is slated to be another pillar piece of 2022’s bear market headlines, joining the likes of brutal bear market moments that include Terra Luna’s downfall and CeFi’s drama.
While rumors have swirled for several weeks now about 3AC’s status, limited details with concrete information have been released. That’s evolving to close out this week, as new reports have shown that 3 Arrows Capital is filing for Chapter 15 bankruptcy in New York.
A Dozen Headaches & 3 Arrows Makes For Chapter 15
In a bull market, it can all be rainbows and sunshine – and 3 Arrows was certainly seeing that with an AUM at around $10B earlier this year. However, the company operations have changed as the tides have turned this year.
Early June saw speculation that 3AC would not pay owed amounts. This was primarily due to $80M owing to Deribit, a derivatives trading platform. Su sent this tweet after a period of about a week without any response from Zhu Su or Kyle Davies. This tweet essentially confirmed that 3AC had serious liquidity difficulties.
Communication with the relevant parties is ongoing and we are fully committed to completing this task.
— Zhu Su 🔺 (@zhusu) June 15, 2022
It’s been dominos ever since. According to Voyager Digital, CeFi platform Voyager Digital claimed that the 3AC crash could have caused them to lose more than $650M. The platform suspended trading and withdrawals. According to the Times, BlockFi was also a CeFi player and suffered losses of approximately $80M.
3 Arrows, a hedge fund based in Singapore, filed Chapter 15 bankruptcy. Chapter 15 is geared towards addressing “cross-border insolvency.”
This year, the cryptocurrency market has faced many headwinds.Source: BTCUSD at TradingView.com | Source: BTC-USD on TradingView.com
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The State of CeFi: Check out the Pulse
CeFi is a centralized finance platform, also known as DeFi. It aims to combine the benefits of DeFi with easy-to use mechanisms and UI in order to appeal to more casual customers while offering high yields and attractive yields. There has been speculation surrounding a number of these companies, as some speculators have suggested that the loans they offer are risky and their liquidity volatile.
Then comes the subsequent problem – where even if liquidity isn’t an immediate issue for a CeFi platform in a downturn, users BelieveIn potential liquidity problems leads to a banking crisis, and liquidity is now a concern because of massive withdrawals. Many people believe some CeFi platforms engaged in more risky processes to produce yield. This adds an additional layer to the complexity. Platforms with ties to VC firms, such as 3 Arrows Capital, make things even worse.
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Featured image taken from Pixabay. Charts come from TradingView.com Disclaimer: The author of this content has not been associated with or paid any money to the companies mentioned. This article is not meant to provide financial advice.