Beleaguered Singapore-based cryptocurrency hedge fund Three Arrows Capital “3AC” has reportedly hired external financial and legal advisers to help work out a solution for its users and lenders, even as the firm battles impending bankruptcy.
The move comes after 3AC failed to meet margin calls last weekend, the Wall Street Journal reported Friday. Apart from the 10-year-old hedge fund facing a facet of liquidations, pressure to refund its user’s deposits is forcing it to explore options such as the sale of assets as well as a bailout by other firms.
Founded in 2012 by two schoolmates Su Zhu and Kyle Davies, 3AC had risen to become one of the biggest crypto hedge funds globally, managing assets worth over $10B. Until recently, the firm held gigantic positions in top crypto projects including Bitcoin Ethereum, Solana AxieInfinity, BlockFi, and Genesis.
The firm had also invested a substantial amount of money into LUNA before Terra’s algorithmic stablecoin UST came crashing last month, catching crypto firms unaware. Davies said that the firm had invested well over $200 million as part of the $1 billion raised by the Luna Foundation Guard in February to purchase Bitcoin, an amount that has since shrunk close to zero. “The Terra-Luna situation caught us very much off guard,” Davies told the WSJ.
3AC’s woes were also painted by the continued selling of its assets in the past week including a $40 million worth of staked Ethereum “sETH” held in Lido to keep its other loaned investments from being liquidated. The firm also reportedly suffered various liquidations under crypto firms Deribit, BlockFi, FTX, and BitMEX for various collateralized loans which had fallen due.
On Thursday, Danny Yuan, the CEO of trading firm 8 Blocks Capital accused 3AC of “ghosting,” investors following its financial woes, advising platforms holding the hedge fund assets to freeze them so that 3AC can be able to pay its debts after legal proceedings.
According to a Friday report by The Block, days before the meltdown, 3AC had been mounting a charm offensive to investors through its OTC firm on a new arbitrage trade that involved Grayscale’s Bitcoin-linked fund GBTC. The hedge fund reportedly asked investors to deposit their BTC with it, after which those coins would be locked up in the GBTC fund for 12 months enabling the firm to work around a recovery plan as well as stay afloat. Currently, GBTC trades at a 37% discount to the price of Bitcoin, which it is meant to track making it a better choice for strained firms in terms of ROI.
Meanwhile, Nichol Yeo, a partner at Solitaire LLP, a law that is acting for 3AC told the WSJ that it was actively engaging Singapore’s financial watchdog, the Monetary Authority of Singapore as they work towards keeping everyone safe.