Three Arrows Capital was recently ordered to be liquidated by the British Virgin Islands court. The crash of Luna was the primary reason for 3AC’s downfall. They had huge leverage and more than $200 million exposure to the cryptocurrency. Amidst all these, Three Arrows Capital files for bankruptcy, citing Chapter 15 in New York.
Three Arrows Capital files for bankruptcy
The crypto hedge firm that just filed for bankruptcy had over $10 billion in assets under management a while back. However, the sharp market downturn and poor risk management have ended them up in this position. Luna’s crash was the final nail in the coffin, as stated above. Starting June 2022, the firm was unable to clear payments and owed a lot of platforms. Deribit, a derivative exchange, was supposed to receive $80 million in 3AC. Voyager Digital and BlockFi also had exposure to the firm.
So, as things worsen and there are no signs of recovery, 3AC has chosen to file for a chapter 15 bankruptcy in NYC. This section was introduced in 2005 to allow cooperation between the US and foreign courts when a bankruptcy proceeding happens. Due to this cooperation, the hearing will be fair to the debtors and credits across different jurisdictions.
The downfall of 3AC
Three Arrows Capital got greedy with high leverage, had poor risk management, and was reckless. All of these got them in a situation where no one could have even imagined them to be. At the peak of the bull market, it had more than $18 billion in assets under management, making them one of the best VC firms.
The 3AC was also a victim of the cascading effect, which started when they borrowed $189 million for collateral of $245 million in ETH from AAVE. As prices fell and 3AC had no funds to add more collateral, they started to get margin calls. And since the firm didn’t respond to those, their holdings got liquidated. They were reportedly forced to sell almost 60k ETH.
That’s not all, as the Luna UST debacle was about to happen. And since 3AC has used 3rd party funds to buy UST and gain returns from Anchor Protocol, they got in another trouble. However, the firm didn’t learn and made the most basic rookie mistake of chasing losses. They increased leverage, and the cycle of losses continued.
What are your thoughts as Three Arrows Capital files for bankruptcy? And do you think the bull market got them overconfident? Let us know in the comments below. Also, if you found our content informative, do like and share it with your friends.
Also Read: KuCoin is not halting withdrawals and won’t be shutting down.
