What are the risks in case of bankruptcy?

Investment fund Three Arrows Capital (3AC) is currently liquidating its position due to difficulty meeting margin requirements. At the same time, we are seeing a lot of asset sales and the company is even considering an acquisition by another company.

Rescue plan initiated by 3AC

According to some observers, after the collapse of the Terra blockchain project and the freezing of withdrawals on the Celsius betting platform, it was the turn of 3 Arrows Capital to go through a rather bad period.

But since mid-June, more analysts have been reporting problems with 3AC accounts. Some use the word “bankruptcy” without hesitation. In an interview with the Wall Street Journal, the founders confirmed the company’s poor health.

Founded in 2012, hedge fund Three Arrows Capital is working on a rescue plan.

Kyle Davis, one of the two founding partners, told The Wall Street Journal on Friday that the hedge fund has hired financial and legal advisers to figure out how to pay off creditors. They want to avoid trials and save what can still be saved.

Having lost money in the LUNA crash a month ago, the investment fund plummeted within a week. “We are not the first to be affected, this is part of an infectious disease affecting many societies,” said Kyle Davis.

Among the options for overcoming the crisis, the company is considering the sale of assets and acquisition by another company. 3AC co-founder Kyle Davis admits his failures but still wants to find a solution

“Cryptocurrency has always convinced us and remains so. We strive to solve problems and find a solution that is fair to all parties involved. »

Natural selection in the crypto world?

In short, Three Arrows Capital is a hedge fund. This is more or less the same as investment funds, except that these speculative funds (also called hedge funds) take stakes in riskier sectors to make higher returns and are willing to hedge them. Therefore, they are considered venture capital.

3AC is now in a rather difficult situation due to the fall in the value of a number of tokens, including stETH. But he also invested $200 million in Luna, and the cost of the Terra project plummeted within days – and now it’s worth nothing.

Between the collapse of Luna and the fall in cryptocurrency prices, some experts believe that 3AC will no longer provide sufficient guarantees for loans taken by the company. If so, the company may default.

If the company defaults, the consequences for the crypto world will be catastrophic. In addition to managing the funds of many companies and individuals who are at risk of losing some of their funds, 3AC has also borrowed large sums of money to fund these investments.

If the platform fails to meet its obligations and repay the loan, everyone in the cryptocurrency will feel a domino effect. The first company to be hit by the collapse of 3AC will be staking platform Celsius, which has provided loans to it and has itself faced severe liquidity problems. Other lenders will also suffer, as will the projects 3AC invests in.

This context of the crisis has put many companies in a difficult position. Thus, every day we see how this decline leads to a natural selection among the strategies that have been applied so far. While some will come out stronger after the bear market, not everyone will recover from it and we will no doubt see more such instances in the future.