A number of crypto companies are struggling with cash problems due to the crash of the Terra Luna system and general market turbulence. After it became known that Three Arrows Capital, one of the largest crypto funds, may have to deal with insolvency fears, some of their partner firms started to crumble.
Crypto broker Voyager Digital experienced a 60% slump in share price on Wednesday after announcing that beleaguered crypto hedge fund Three Arrows Capital may default on a $650 million loan. Canada-based Voyager Digital announced that it could not assess how much Singapore-based 3AC, which recently faced margin calls from lenders BlockFi and Genesis, will be able to pay back. It requested 3AC to pay $25 million in USDC by June 24, 2022, and the balance of the USDC and Bitcoin (BTC) by June 27, 2022. The company noted that failing to meet either payment deadline will constitute a default and is discussing possible legal recourse with its advisors.
3AC rumored to be facing insolvency issues
Last Tuesday, 3AC CEO Zhu Su sent out a cryptic tweet seemingly to allay fears of liquidation after Twitter user “MoonOverlord” noticed that Zhu and 3AC co-founder Kyle Davies hadn’t tweeted for several days. MoonOverlord also noticed that Zhu had deleted his Instagram account and had removed all cryptocurrency symbols from his Twitter bio except for bitcoin.
We are in the process of communicating with relevant parties and fully committed to working this out
— Zhu Su 🔺 (@zhusu) June 15, 2022
In addition, Three Arrows withdrew 80,000 stETH, a derivative of Ethereum (ETH) issued by Lido finance for staking ETH, from the DeFi platform AAVE. The company then swapped 38,900 worth of stETH for 36,700 ETH. Since the ratio of ETH to stETH is less than one to one, market pundits believed this was a sign of liquidity issues. Zhu then tweeted that they were “fully committed” to working out issues without being specific. The company burned its fingers after investing hundreds of millions in the algorithmic stablecoin Terra, which collapsed with its sister token Luna early in May. A significant crypto sell-off didn’t help the over-leveraged fund.
CEO of FTX extends a lifeline for crypto firms
Crypto lender BlockFi announced Tuesday the signing of a term sheet securing a $250 million revolving credit line from crypto exchange FTX after it preemptively liquidated 3AC’s margin loan, whose collateral had fallen under acceptable limits. Alameda Research, a quantitative trading firm founded by Sam Bankman-Fried, who also serves as FTX CEO, recently loaned Voyager Digital $485 million in cash, USDC and bitcoins. Voyager has said it will only use the credit line if necessary, still holding about $150 million in cash. The rest should be held in cryptocurrency and $20 million earmarked for USDC purchases. Bankman-Fried said he was happy to help stem the contagion currently plaguing the crypto market.
Voyager stated in a Twitter thread that the company prioritizes customer funds and refrains from offering DeFi lending, algorithmic stablecoin (potentially a veiled reference to TerraUSD) staking and lending, and has no dealings with stETH. The crypto token stETH is at the heart of the problems of crypto lender Celsius, who was force to paused withdrawals from its accounts a week and a half ago. Despite this, Voyager’s most recent announcement has raised concerns from Compass Point Research & Trading analysts that customers could start to pull funds en masse, creating a “bank run”.