The crypto venture capital firm Three Arrows Capital has now confessed that it’s in deep financial trouble. It is considering selling its assets or being bailed out by a larger company to stay afloat.
Desperate Times for 3AC
As reported by the Wall Street Journal, company co-founders Su Zhu and Kyle Davies have confirmed such bailout considerations. They are both speaking with legal and financial advisors to develop a solution for the investors and lenders they owe.
Their troubles are hardly an isolated case. Crypto exchange Coinbase and lending platform BlockFi recently announced 18% and 20% staff layoffs respectively due to financial constraints.
Coinbase and other such industry players cite macroeconomic pressures as the trigger for their financial woes. After last week’s reveal of 8.6% inflation in the United States, crypto markets plummeted over the weekend to lows unseen since December 2020.
The collapse is placing pressure on companies like 3AC, with many struggling to refinance their crypto-backed loans. There are now signs of financial contagion, whereby the collapse of one crypto company or protocol spurs the fall of another.
“The Terra-Luna situation caught us very much off guard,” said Davies, explaining that 3AC had invested $200 million into LUNA. That investment is now worth roughly $670 following LUNA’s hyperinflation – an event that arguably kicked the first domino of this month’s collapse.
The 3AC Backstory
Until now, worries about 3AC’s insolvency were rumors alone. However, a collection of on-chain evidence signaled some level of desperation from the institution to refinance loans approaching liquidation.
According to Wu Blockchain, certain institutions in Asia have already liquidated hundreds of millions of dollars of 3AC’s assets. Sources have also told The Block that 3AC’s positions were liquidated at FTX, Deribit, and BitMEX.
Su Zhu had posted an ominous tweet on Tuesday, claiming he was “communicating with relevant parties” to work out the issue. However, multiple partner companies claim that they were ghosted by the company when demanding capital that was rightfully theirs.
Other companies like Finblox – an investor in 3AC – have been forced to tighten withdrawal limits on their customers.
The first company to make a similar announcement this week was Celsius, which paused all platform withdrawals on Monday. On Friday, Asian crypto lender Babel Finance took the same action, citing the same liquidity trouble.