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Overview of 3AC collapse and chain effects

Reason for collapse

Heavy damage from Luna

This is the starting event for the series of market tragedies from the 20% loan interest rate. Because the anchor policy between LUNA and stablecoin UST did not last when the market plummeted, despite Terra’s efforts to rescue the reserves, it caused the market to wobble, affecting many contributed funds. investment capital in Terra, including Three Arrows Capital.

3AC is a fund that supports Terra and Luna a lot, so Terra’s collapse has caused 3AC’s side to suffer a lot of damage. Specifically, during the $ 1 billion capital call made by Luna Foundation Guard (LFG) in February to build the ecosystem, 3AC strongly invested $ 200 million to support the project, many sources said. also said 3AC bought about 10.9 million Luna worth about 560m USD just before Terra’s demise in May.

Some investors even think that 3AC also takes user money to participate in staking with 20% APR on Anchor to make a profit, if that is true, the loss of 3AC in this event will be huge.

Read more:
Luna’s Falling Process
The culprit behind Luna’s downfall

sETH lost peg

Three Arrows Capital, as well as other funds that invest in ETH, have invested a lot here. Specifically, 3AC has invested more than 660 million USD in ETH and to increase profits, and 3AC has deposited in Lido (LDO) to receive interest and receive stETH.

Then, to take advantage of the liquidity of stETH, 3AC mortgaged Aave to borrow ETH and transferred ETH to Lido for stETH ⇒ creating a loop to optimize profits. However, the market did not support this plan of 3AC and this caused stETH to lose peg seriously.

After Alameda sold off stETH causing it to severely deviate from ETH, 3AC also had to sell off to widen the liquidation threshold.

3AC also had to sell off to widen the liquidation threshold
3AC also had to sell off to widen the liquidation threshold

On the afternoon of June 15, 3AC sold $40 million worth of CP to keep the $264 million Aave loan and $35 million Compound loan from liquidation.

More specifically, on June 15, a wallet that was supposed to belong to 3AC was liquidated on Compound.

On June 15, a wallet that was supposed to belong to 3AC was liquidated on Compound
On June 15, a wallet that was supposed to belong to 3AC was liquidated on Compound

I don’t know how much they lost in this case, but the liquidated money plus the loss of stETH made them suffer a lot in this case.

Excessive leverage

The biggest reason why 3AC fell into default was the use of too much leverage.

There are many platforms and funds that have taken advantage of the stETH policy from the LIDO platform to optimize revenue, and so is 3AC. However, as stETH depreciates and depreciates in value, this makes highly leveraged borrowed assets more susceptible to liquidation, leading to a chain crash.

In particular, 3AC not only contributes investment capital with available capital, but also borrows capital from many other platforms. Specifically, 3AC signed a capital use contract with 8B locksCapital company, allowing 3AC to benefit from the loan budget, but when there is a need to withdraw assets, 8B locksCapital can completely withdraw at any time. However, until June 12-13, when this fund needed to withdraw money, 3AC did not respond.

In addition, a KOLs in the market, DeFi Edge, said that a few real estate projects such as Protocol X and other real estate projects have used 3AC’s fund management service with a loan interest rate of 8%. And they can’t contact 3AC either.

Invest in GBTC

3AC is the investment fund that holds the most shares of GBTC – the ticker that represents Grayscale’s Bitcoin fund. However, with the launch of all the ETF products that we have seen in the past 2 years, the price of GBTC gradually depreciated and hurt investors. Especially this year, GBTC has been depreciated even more as there are more and more ETF products out, Grayscale has also applied to convert more than 13 billion USD of GBTC to ETF but all were rejected outright by the SEC.

Invest in GBTC
Invest in GBTC

With an investment fund like 3AC, they certainly couldn’t pass up this bargain by buying GBTC at a discount and waiting for the price to rise when the conversion application was approved. Since the Luna incident, 3AC has focused a lot of its resources on and before the rumors of bankruptcy 3AC started to increase the acquisition of GBTC.

Bankruptcy & Chain Effect

File for bankruptcy

On July 2, Three Arrows Capital officially filed for bankruptcy in a New York court. Although this investment fund’s journey is coming to an end, the implications it brings to the cryptocurrency market are huge and very persistent. Below we will review the names that have been heavily affected by 3AC.

Three Arrows Capital said that without bankruptcy protection, 3AC’s creditors would take them to court for assets. If this happens, an orderly liquidation of assets and ensuring fairness between the creditors will not be possible.

The fund also revealed that one of its creditors has begun legal proceedings to sue also in a New York court.

Also in the past few days, rumors have surfaced that CEO Zhu Su of Three Arrows Capital is selling off his personal assets in Singapore, including a $35 million mansion, yachts and many supercars.

Effect

BlockFi

According to multiple sources, BlockFi loaned 3AC USD 1 billion, collateralized with 2/3 in Bitcoin and the remaining 1/3 in Grayscale’s GBTC stock. But BlockFi declined to comment on this information. At the same time, BlockFi CEO Zac Prince confirmed that the damage from this incident was only $80 million.

BlockFi has confirmed the loan figure from FTX. Up to this point, BlockFi has borrowed a total of $400 million from FTX. At the same time, the US branch FTX will have an agreement to buy BlockFi for $240 million.

Voyager Digital

Next is Voyager Digital, which lent Three Arrows Capital 15,250 BTC and $350 million. Voyager Digital’s series of events includes:

  • On June 18, Alameda Research loaned Voyager Digital $485 million to reduce liquidity risk.
  • On June 27, 3AC was unable to repay the aforementioned loan to Voyager Digital.
  • On July 2, Voyager Digital blocked deposits and withdrawals from users.
  • On July 6, Voyager declared bankruptcy, revealing that Alameda Research was borrowing money from them.

Genesis Trading

On June 17, Genesis Trading said that it is restructuring to minimize the impact of large partners who are borrowing from the company and not meeting the margin call requirements.

Then on June 29, a confidential source revealed that Genesis Trading lost “hundreds of millions of dollars” from 3AC.

Blockchain.com and Deribit

These are the two names mentioned at the beginning. On June 29, Blockchain.com and Deribit filed an application with the British Virgin Islands (BVI) court to liquidate the assets of Three Arrows Capital for the reason of “insolvency”.

Notably, Deribit has a complicated relationship with 3AC, when this investment fund is one of the shareholders of the parent company. As of the time of writing, there is no information about the amount of money Three Arrows Capital borrowed from the two exchanges mentioned above, and both Blockchain.com and Deribit confirm that users’ assets are still safe.

On July 8, Blockchain.com admitted to having loaned Three Arrows Capital up to $ 270 million and was in danger of losing this amount.

Finblox

On June 16, Finblox announced liquidity problems and blocked deposits and withdrawals from users.

The reason given by Finblox is because of the impact of Three Arrows Capital having financial difficulties. Finblox revealed that Three Arrows Capital is one of the main investors in the project and uses Finblox’s money to make profitable investments.

Some names are rumored

– Babel Finance lending platform: influenced by 3AC, blocking deposits and withdrawals, but then there was an agreement between the parties

– DeFiance Capital investment fund: rumored to be influenced by 3AC, the relationship between them is quite close. The speculation comes as the Founder of Defiance Capital posted a cryptic tweet about a liquidity bomb.

Summary

After the bankruptcy of Three Arrows Capital (3AC), we can see in the market that no matter how big it is, if they don’t have a sound financial management strategy, they will soon collapse. Lessons that can be learned:

  • Don’t deify and put too much faith in the big fund
  • No project is certain even top coin, learn and invest more than 1 project..
  • Update knowledge continuously, learn and improve knowledge to make the right decisions

The above is all information that we research and not investment advice, hope to help you in the upcoming investment process.