Time Bomb: 3AC Crisis Could Crash These Altcoins!

Three Arrows Capital (3AC) was founded in 2012. Since then, it has grown into one of the largest and most respected hedge funds in the cryptocurrency space. Now the company is in the biggest crisis in its history. According to the data, it’s even possible that the hedge fund could go bankrupt as liquidations increase. Such an impact would be a shock wave that would engulf all altcoin projects. Because of this, we researched the altcoins most likely to be impacted by the liquidations that 3AC has seen and possible future bankruptcy.

The 3AC crisis hits the crypto market

Rumors that Three Arrow Capital could be facing bankruptcy have recently circulated on social media. The fund had approximately $3 billion in assets under management as of April 2022. However, some recent reports suggested that many of its undercollateralized loans were failing to meet margin calls. Amid these allegations, the silence from 3AC founders Su Zhu and Kyle Davies raised questions.

Additional reports suggest that margin calls weren’t the only reason Zhu and Davies have remained silent. During the week, other funds that Three Arrows did business with took to Twitter to share their stories. Danny Yuan, CEO of 8 Blocks Capital, was one of them. Yuan’s company had a long-standing relationship with Three Arrows. However, the CEO said he has not been able to contact Zhu or Davies this week. Yuan claimed that about $1 million of his company’s money was lost in one of Three Arrows’ trading accounts. Then he asked the hedge fund for an answer.

BlockFi has liquidated $400 million

Toward the end of the week, more sources began to confirm the information. This lent credence to rumors of the margin close and Three Arrows liquidation. cryptocoin.com As we reported, BlockFi has liquidated Three Arrows’ $400 million position in the company. As a result, one of the largest crypto funds faced a major restructuring. Because of this, fears of further contagion to other parts of the industry have spread across the industry. Three Arrows has made a total of 56 investments in various crypto startups, according to Crunchbase data. In most cases, the company will likely receive equity in the form of tokens that will be staked over a number of years.

How will the 3AC crisis affect the bitcoin and altcoin markets?

Any project that allocates tokens to Three Arrows in exchange for funding will be affected by the crisis. Token allocations are usually earned, which means buyers have to wait a certain amount of time before being able to sell them. Three Arrows needs to increase liquidity to pay off its current debt. Therefore, when they open, they will turn to token holdings to liquidate them. This will result in the fund selling a large amount of tokens to the already depressed crypto market. This will increase the already high pressure to sell even further.

Which altcoin projects are at risk

The list of projects that Three Arrows holds staking reward tokens for is probably huge. However, not all are equally at risk. Smaller projects with lower market caps and less liquid markets are inherently more susceptible to price movements from token unlocking. These projects include Avalanche-based crypto game projects like Imperium Empires, Ascenders, and Shrapnel. Three projects were supported by Three Arrows. They have also given away altcoin assets to early investors in the past.

Other Three Arrows contributors, such as Cardano project Ardana, will continue to unlock tokens. In the coming year, Three Arrows will receive millions of DANA tokens from Ardana’s contribution to investment rounds. Ardana founder Ryan Matovu recently announced that Three Arrows is the startup’s largest single investor. This put the altcoin asset in a dangerous position for the future. Therefore, any project that Three Arrows supports in the short term is potentially at risk. The details of the company’s investment dealings are often private. However, a look at the vesting schedules of individual projects will sometimes shed light on the timing and extent of upcoming unlocks.

These altcoin projects have already made losses

DeFiance Capital is another potential victim of the Three Arrows crisis. It functions as a sub-fund and share class of Three Arrows. He has also advised 3AC’s main fund on many venture investments. Details of the relationship between the two companies are not publicly available. However, recent tweets from DeFiance founder Arthur Cheong suggest that Three Arrows’ liquidity issues are hurting the altcoin project. Accordingly, Cheong sent out a series of cryptic tweets saying that his company was also having problems. “Some friendships are truly priceless and a blessing. Some aren’t,” he said.

Details of the state of DeFiance are not yet known to the public. But given the company’s affiliation with Three Arrows, it’s clear that bankruptcy is a legitimate possibility. If such an outcome occurs, DeFiance must also liquidate staked token positions. In this case, projects supported by both Three Arrows and DeFiance are at risk. DeFi protocols Aave and Balancer received funds from Three Arrows and DeFiance in exchange for tokens from their treasury. Aave’s stake tokens are already unlocked. However, it is not yet clear how many of those allocated by Balancer have been unlocked. Other protocols that will find themselves in a similar situation are DeFi projects pSTAKE Finance and MEANfi. Additionally, crypto gaming projects Civitas, Ascenders, and Shrapnel are among the likely affected altcoin projects.

time bomb

It will likely be some time before any of Three Arrows’ liquidity issues become public. Some rumors suggest that the company has taken out large unsupported loans from multiple lenders. He also states that he used the borrowed capital to invest long-term in Bitcoin and Ethereum when the market plummeted. If true, some big players would lose out on lending to the company. The fund says it is considering a recovery plan. But more liquidations are imminent if there is no settlement with its creditors or other venture firms. With the macro picture showing no clear signs of improvement, the Three Arrows crisis has become a ticking time bomb for the crypto industry.