https://twitter.com/thedefiedge/status/1537465349976694786
One of the LARGEST Crypto Venture Capital firms:
Three Arrows Capital.
They're becoming insolvent.
With potentially $18b under management, this could be catastrophic for Crypto.
Here's a timeline of what's going on and the possible consequences:
Who is Three Arrows Capital? (I'll refer to them as 3AC)
One of the largest Crypto focused Venture Capital firms in the world. Started by high school classmates @zhusu and @kylesLdavies in 2012.
Initially based in Singapore , they've recently moved to Dubai
Some of their best investments include:
• Avax
• Near
• Aave
• Derabit
• Starkware
• Terra Luna
• Axie Infinity
Their assets under management were estimated to be between $10-$18b. A top 5 VC firm - their power and influence went far in this industry.
Psyops and Mind Games Zhu is influential, with an audience of >560k on Twitter.
He was also known for playing plenty of mind games (Psyops) with his audience.
For example, he created a thread fudding Ethereum, which caused the price to drop.
https://twitter.com/zhusu/status/1462216210116853762
And then he purchased Ethereum afterward at a lower price point.
So whenever Zhu makes a claim, the industry doesn't know if he's serious or playing mind games on us for his profit.
He was a huge proponent of the Supercycle theory.
In Feb 2021, he projected that the price of BTC would reach $2.5 million on an episode of UpOnly.
A few weeks ago, he announced that his thesis on the Supercycle was wrong.
https://twitter.com/zhusu/status/1530160645294931973
3AC Backs Terra Luna Before the Terra collapse last month, 3AC spent $559.6 million to buy Locked Luna. It's now worth roughly ~$670.
There is SPECULATION that the massive losses of Luna caused them to use more leverage to earn it back.
Also known as "Revenge trading"
The Dangers of Leverage
"There are three ways a smart person can go broke: liquor, ladies, and leverage." - Charlie Munger
Token prices have crashed over the past few weeks.
If your collateral value is lowering, you're at risk of liquidation.
How LIQUID is 3AC?
We know 3AC has made some fantastic investments, but many of the tokens are locked and illiquid for years. So if they're getting margin called, it will to be tough to repay the loans if they don't have the liquidity available.
The First Signs of Insolvency Degen trading claims that 3AC borrows from every major lender. And they're at risk of being liquidated on many of their positions.
https://twitter.com/hodlKRYPTONITE/status/1536902115540742144
Rumors of Liquidation Rumors started swirling that 3AC was about to be liquidated against its $264m ETH position.
• Nansen confirmed that the wallet was NOT tagged as 3AC
• Apparently, there UI was a bug that caused the poster to see it as 3AC
https://twitter.com/OnChainWizard/status/1536918183851982848
Confirmation of Trouble At this point, people are confused.
Is there trouble at 3AC or are people spreading FUD about the firm?
Well, Zhu wrote a crypto tweet the other day hinting that there's trouble at 3AC.
https://twitter.com/zhusu/status/1536876343815983104
"I know it was you, Zhu. you broke my heart."
stETH price has been having some issues.
Everyone assumed it was Celsius that was dumping their stETH. It looks like it was 3AC doing the dumping.
https://twitter.com/MoonOverlord/status/1536697618797142016
An Insider's Account Where there's smoke, there's fire. Danny's firm works closely with 3AC. They noticed that $1m was missing from their accounts. Apparently, the founders are ghosting people, and 3AC is getting liquidated everywhere.
https://twitter.com/Danny8BC/status/1537224378554806272
Now we're starting to see the initial consequences come in. Finblox, a CeFi company, is pausing reward distributions because of 3AC's volatility. 3AC is an investor in Finblox.
https://twitter.com/finblox/status/1537414199890296838
Credit:
https://twitter.com/finblox/status/1537414199890296838
Watch Out for Unlocks Miles suggests keeping an eye out for unlocks. If 3AC is having financial issues, then you can assume they'll sell their tokens at the first opportunity.
https://twitter.com/milesdeutscher/status/1537373757870047233
Further Consequences Unfortunately, we don't have a COMPLETE picture of 3AC's wallets and positions. We don't know how much damage it'll cause if they're insolvent. Due to the size of the AUM, the contagion effects will be catastrophic.
VCs Aren't Gods
People have a Halo Effect bias when it comes to Venture Capitalists. A lot of people felt Terra was too big to fail. People assumed that firms like Jump and 3AC would bail them out / figure it out. That didn't happen. They don't always get it right.
Managing Risks
3AC got into the seed rounds of some of the most prominent Crypto protocols.
Yet they might go broke.
Risk management is UNDERRATED.
- Don't fight the Fed
- Leverage is dangerous
Takeaways:
• 3AC lost a ton of cash in Terra Luna
• 3AC is getting margin called and liquidated
• This could cause a rippling effect on the industry
• Doesn't matter if you're up 100x if you don't practice solid RISK MANAGEMENT