Portfolio Firms Are Distancing From Three Arrows Capital Amid Insolvency Fears

Several prominent crypto firms took steps to separate themselves from the distressed 3AC, which is at a real insolvency risk.

Bishal Kumar Chanda3 min read
Portfolio Firms Are Distancing From Three Arrows Capital Amid Insolvency Fears

For years, the Three Arrows Capital (commonly called 3AC) was the industry favorite among the crypto investment firms. However, 3AC is at real risk of insolvency amid the crypto bear market and after Terra's downfall last month. Furthermore, several prominent crypto firms took steps to separate themselves from the distressed 3AC.

Rumors about Three Arrows Capital's potential insolvency started spreading last weekend. Since then, co-founder Su Zhu has only stated that 3AC is "in the process of communicating with relevant parties and fully committed to working this out."

Last Tuesday, it was revealed that 3AC began selling off assets, including $40 million worth of Lido Staked Ethereum (stETH). Furthermore, the community speculates that 3AC has been trying to save a $264 million Aave loan and $35 million Compound loan from liquidation.

On Friday, the crypto hedge fund confirmed suffering heavy losses due to its Terra exposure. When Do Kwon's Luna Foundation Guard (LFG) purchased $1.5 billion worth of Bitcoin on May 5, it was with 3AC's help. Reportedly, 3AC also held around $560 million worth of locked LUNA, now worth less than $1,000.

Finblox Reduces Customer Withdrawal Limits

According to a statement on its website, the crypto lending platform Finblox has "paused all reward distributions, updating withdrawal limits and disabled the creation of new crypto addresses until further notice."

Finblox tweet on 3AC.

Now, users can only withdraw up to $500 worth of their assets daily, with a monthly limit of $1,500. This is due to its association with 3AC, which participated in Finblox's $3.9 million funding round in March.

"We have been cooperating with over 8 partners and protocols, including 3AC, to generate yields and spread the risk as evenly as possible," wrote the crypto lending platform.

"Based on currently available information and our priority to maintain the integrity of the platform - we have decided to take the following actions while pursuing all available options to evaluate the effect of 3AC on the liquidity, and ensure fair treatment of all user assets in the system."

Deribit's Debt With Three Arrows Capital

Meanwhile, 3AC is a shareholder of the crypto derivatives exchange Deribit's parent company. According to a recent tweet by the company, Deribit considers the small debt it has with 3AC "potentially distressed."

Deribit tweet on 3AC.

"Even in the event that none of this debt is repaid to us, we will remain financially healthy and operations will not be impacted," reads the Twitter thread.

"We can confirm all customer funds are safe and the full insurance fund will remain intact as is. Any potential losses will be covered by Deribit."

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