Speculation is growing that Three Arrows Capital, a Singapore-based, crypto-focused hedge fund, is now insolvent and could become the latest company to fall victim to the bear market. In response, the company’s co-founder has released a statement on Twitter, addressing growing rumors around the firm’s insolvency.
A Cryptic Statement As Rumor Mills Swirl
With rumors refusing to die down, the co-founder of Three Arrows Capital (3AC) put out a cryptic tweet on Twitter, which would do little to assuage fears. Zhu tweeted,
“We are in the process of communicating with relevant parties and fully committed to working this out.”
The rumors started after online chatter around Three Arrows Capital being unable to meet a margin call began when 3AC started moving assets around earlier in the week to top up their funds on DeFi platforms such as AAVE. This was done to avoid potential liquidations against the backdrop of the price of ETH tanking significantly. Unconfirmed reports also claimed that Three Arrows Capital was facing liquidations worth hundreds of millions. A tweet by Onchain Wizard confirmed that 3AC showed that 3AC was indeed moving funds around.
“This wallet (tagged as 3AC on Nansen) has been aggressively paying back AAVE debt against its 223k ETH / $264mm position to avoid liquidation. With $198mm in borrowings against it, @ a 85% liq threshold, a -11% move in ETH to $1,042 liquidates it.”
Speaking about 3AC and its urgency to reposition its balance sheet, Ryan Selkis from Messari Crypto highlighted stated that the firm ended up on the wrong side of two synthetic trades. Wu Blockchain had also reported that the firm had lost around $31 million in May through trading on Bitfinex.
“According to Bitfinex Leaderboard, Three Arrows lost $31,370,031.97 in Bitfinex trading in May, ranking second. The account lost $37,278,593.9 on Bitfinex this year. In June, the account was not recorded. But losses on a single exchange may just be hedge."
Celsius Not the Largest Seller
Data has shown that DeFi banking platform, Celsius, has also been shoring up its positions to avoid liquidations. Celsius accounts for a significant chunk of the Total Value Locked in various platforms in the DeFi ecosystem, in which 3AC is a significant borrower. If either of the two collapses, there could be repercussions for the entire space.
Earlier this week, 3AC sold around $40 million of Lido’s stETH, becoming the largest seller of the token over the past week. Market watchers are keeping tabs on stETH as it has historically traded at par with ETH. However, this changed in May, and a de-peg last week created a headache for its largest holders.
The 3AC stETH Firesale
Three Arrows began selling stETH right after the collapse of the UST stablecoin, stated DeFi analyst DeFiyst. Back then, stETH had fallen to 95 cents, following which 3AC pulled out over 127k stETH from Curve. DeFiyst wrote,
“They have been in and out of AAVE, wstETH, etc., until the selling began this week.”
On Tuesday, 3AC carried out several transactions, withdrawing stETH from AAVE and then exchanging 38,900 stETH for ETH.
Zhu Su Criticized By Community
The co-founder of 3AC has been heavily criticized for hyping up the stETH token, even as his firm continued to dump it. He had stated,
“Most of the stETH fair discount analysis I’ve seen misses that from an on-chain functionality perspective, stETH is nearly pari passu w eth functionality in DeFi.”
However, users were quick to fire back, stating,
“Literally the moment 3AC capitulates after holding STETH the whole way down – He posts bullish about it. How much do you have to hate People around you to do this?”
According to the latest figures, $400 million of 3AC positions have already been liquidated, with a further $300 million at risk if the market continues on its current trajectory.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.