As the crypto market collapses, Three Arrows Capital, a prominent crypto hedge fund has just defaulted on a loan for more than $670 million. The official notice was filed Monday morning by digital asset brokerage Voyager Digital. It stated that under the terms of the loan, they were due repayment with $350 million in stablecoin USDC, and $323 million in Bitcoin at present pricing.
Three Arrow Capital’s money troubles came as the crypto market collapsed, erasing trillions of dollars in capital. As it collapsed, a market capital that once sat at about $3 trillion was suddenly reduced to $950 billion.
As Voyager tells clients it intends to pursue recovery from Three Arrows, it also emphasizes that it continues to operate and fulfill customer orders and withdrawals. Many see that assurance as part of a broader attempt to limit contagion and panic throughout the crypto-ecosystem.
Voyager CEO Stephen Ehrlich says, “We are working diligently and expeditiously to strengthen our balance sheet and pursuing options so we can continue to meet customer liquidity demands.”
Voyager has noted it has roughly $137 million in US dollars and crypto assets, in addition to a $200 million cash and USDC revolver, and a 15,000 Bitcoin revolver from Alameda Ventures.
A week ago, Alameda committed $500 million in financing to Voyager and Voyager has already tapped $75 million from that line of credit.
Ehrlich’s statement continued, “The default of 3AC does not cause a default in the agreement with Alameda.”
Three Arrows Capital was founded in 2012 by Zhu Su and Kyle Davies. Zhu had been incredibly bullish on Bitcoin, at one time predicting that each token could be worth as much as $2.5 million. However more recently he lamented that his “supercycle price thesis was regrettably wrong.” Then as the crypto market tumbled, Zhu tweeted out cryptically, Three Arrows was, “in the process of communicating with relevant parties” and was “fully committed to working this out.” He never expounded further on what he meant.
The Financial Times later reported that crypto-lender Block-Fi had liquidated some of Three Arrow’s positions as part of a margin call.
Then stablecoin Terra and its sister coin Luna collapsed. Three Arrows reportedly had substantial exposure to Luna, and suffered more losses.
One concern is Three Arrows, one of the biggest crypto hedge funds, has borrowed large sums of money from numerous companies, which it has turned around and invested in various digital asset projects. This has some observers asking about the possibility of contagion if it goes down.
Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno said, “The issue is that the value of their [3AC’s] assets as well has declined massively with the market, so all in all, not good signs. What’s to be seen is whether there are any large, remaining players that had exposure to them, which could cause further contagion.”
