Three Arrows Capital is on the brink of collapse as it deals with asset sales and bailouts. The current state of 3AC is linked to everything that has happened in the crypto space since the Terra ecosystem collapsed.
Three Arrows Capital was one of the largest VC funds, with more than $18 billion in total assets under management. Ethereum (ETH), Near Protocol (NEAR), and Avalanche are among their key investments.
After the Celsius Networks episode earlier this month, suspicions about 3AC’s leverage positions began to surface.
How did the firm end up in this situation?
The firm recently stated that they have $245 million in Ethereum (ETH) put in the AaveAave protocol. The corporation used the deposits to borrow $189 million in USDC and USDT, resulting in a 77 percent Loan-to-Value ratio.
3AC was unable to add collateral or pay off debt because to the illiquidity of these tokens, which were frozen. A massive liquidation cascade ensued as a result of this. As the market began to drop, 3AC was exposed due to their excessive use of leverage.
Reports found that 3AC was leveraged long everywhere, making things even worse. Margin calls skyrocketed as a result of this. The bad news was that 3AC chose to ignore them rather than address them.
3AC sold approximately 60K staked ETH as the liquidity concerns increased. The commencement of 3AC’s insolvency can be directly linked to the fall of LUNA and UST. Three Arrows Capital purchased money from investors and deposited it in the anchor Protocol. The company is accused of using counter-arty funds to establish a large UST holding in anchor Protocol without alerting investors.
According to reports, the VC firm acquired $560 million in locked LUNA. Following the LUNA crash, the value of the same plummeted to a pitiful $600. 3AC’s thirst for borrowing grew as a result of these massive losses.
Almost every major lender has sold loans to 3AC, including Celsius, FTX, BlockFi, BitMEX, and Nexo. If 3AC defaults on its loans, these lenders could be affected hard, setting off a chain reaction.