Media: BlockFi liquidated part of Three Arrows Capital’s positions

The crypto lending platform BlockFi has liquidated at least part of the positions of hedge fund Three Arrows Capital (3AC). The Financial Times reports, citing informed sources.

In 2020, 3AC became a strategic investor in the lender. A year later the fund exited its stake and took a sizable position in Bitcoin, but given market conditions it was unable to meet margin requirements. One of the publication’s sources noted that the position was closed by mutual agreement of the parties.

BlockFi CEO Zac Prince indirectly confirmed the FT’s information. In a tweet, he wrote that the company had recently “made its best business decision regarding a major client that failed to meet margin-loan obligations with excessive collateral”.

No client funds are impacted. We believe we were one of the first to take action with this counterparty.

— Zac Prince (@BlockFiZac) June 16, 2022

«We accelerated the repayment of the loan and fully liquidated or hedged the debt related to it. Client funds were not harmed. We believe we were among the first to take action against this counterparty», — wrote Prince.

An analyst going by the handle FatMan, citing “trusted sources”, also said that Three Arrows Capital has a “large debt” to the crypto derivatives exchange BitMEX. According to him, the fund took on several undercollateralized positions.

Verified sources have confirmed that 3AC owes a large debt to BitMEX, a popular cryptocurrency exchange. 3AC has reportedly taken on several undercollateralized positions, creating unsecured debt. The creditors who got in touch with me confirm that 3AC are still uncontactable.

— FatMan (@FatManTerra) June 16, 2022

The crisis around 3AC affected the entire crypto industry, as many major projects were linked to the hedge fund.

Keep an eye on these assets.

These are 3AC’s primary holdings.

They’ll presumably look to dump during upcoming unlocks. pic.twitter.com/ozXP8HcdXe

— Miles Deutscher (@milesdeutscher) June 16, 2022

One of the fund’s portfolio companies, Finblox, paused client reward distributions and the referral program. It also cut withdrawal limits and barred new users from creating cryptocurrency addresses.

IMPORTANT UPDATE FROM FINBLOX! pic.twitter.com/VjclRMMiSe

— Finblox (@finblox) June 16, 2022

3AC led the token sale of LUNA from LFG for $1 billion. In May the Terra ecosystem collapsed, and its native cryptocurrency plunged in value.

The fund also invested in the blockchain platform Avalanche, whose native token has shown one of the worst performances in the market over the past month. Over the last 30 days the price of AVAX fell by 52%, according to CoinGecko.

On June 17, the project emphasised that 3AC “never managed, used or custodied any Avalanche Foundation treasury funds”.

Due to recent speculation, we’d like to clarify that 3AC has never in any way managed, used, or custodied any Avalanche Foundation treasury funds.

— Avalanche 🔺 (@avalancheavax) June 16, 2022

Three Arrows Capital was one of the largest investors in Grayscale’s Bitcoin Trust. According to the SEC report dated December 31, 2021, the fund owned almost 39 million GBTC shares ($1.2 billion at the time). Data from YCharts shows the trust’s shares trading at a 33% discount to net asset value.

An anonymous author of The DeFi Edge newsletter noted that, due to a string of failed investments and vesting-related constraints, 3AC lacks sufficient liquidity to meet margin calls.

How LIQUID is 3AC?

We know 3AC has made some fantastic investments, but many of the tokens are locked and illiquid for years.

So if they’re getting margin called, it will to be tough to repay the loans if they don’t have the liquidity available.

— The DeFi Edge 🗡️ (@thedefiedge) June 16, 2022

“A smart person can go broke in three ways: alcohol, women and leverage,” he quoted Berkshire Hathaway vice chairman Charlie Munger.

The author also noted that 3AC offered some portfolio companies and projects financial management services.

Recall, on June 16, trading firm 8 Blocks Capital accused Three Arrows Capital of using client funds to cover margin calls.

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