Crypto is mimicking the house of cards narrative as many projects have fallen because of extreme greed. The Three Arrow Capital (3 AC) bankruptcy is a new addition to the list. Post Luna’s collapse, the crypto market has been dwindling everyday. Fed’s tapering, food crisis, inflation, wars and threat of recession have further exacerbated the future . That said, project failure should come up as a surprise as the beginning of worse days has just started!
What Just Happened?
The founder of 3 Arrows Capital, Su Zhu, supported the crypto boom in 2017. This was evident when he invested heavily in Ethereum, Avalanche, Polkadot and Terra Luna. However, much of the fundings invested in these companies were not from bootstrapped means but as crypto collaterialized loans. The loans stood under mortgaged through crypto collaterals that lost value overnight and finally led to complete collapse and default. The event compelled 3AC to liquidate their positions and pay off the loans to defaulters. In actuality, much of the loans stood still defaulted.
What Investors and VCs Can Learn From 3AC Downfall?
The VCs and big-shot investors take bull markets as cash rich scheme and short cut to making quick money. The reality however is grim since crypto market is famous for sharp volatility. Whether it is the Terra Luna fiasco, Celsius Network liquidity crisis, Iron Finance bank run, innovation has piqued investors. Hence, they invested heavily into projects without analysing the worst case scenario. In the last bear market, similar incident happen with ICO. Almost 80% of the ICOs turned shitty. As a result, a lot of money was compromised. This bull season, products and tools are different but the narrative is same! Crypto investments must be taken with a grain of salt because they can backfire and one must learn that now!