As crypto market continues its descent, more flaws in protocols and companies are unveiled.
? We saw the failed logic of Terra protocol,
? the risks of over-exposure to synthetic assets like stETH of Celsuis,
? and now… the over-indebtedness of Three Arrows Capital ?
Three Arrows, commonly known as 3AC, is a crypto hedge fund based in Dubai, famous notably for backing Avalanche, Solana and Terra among others. It is one of the prominent industry players with assets under management estimated at $10 billion (CB insights).
Unfortunately, its investment strategy did not withstand the test of time: the firm invested heavily in $LUNA and staked a lot of ethers on ETH 2.0 via the Lido protocol. When $LUNA crashed, 3AC started to massively sell its stETH (tokens given by Lido as an IOU for the staked ethers), contributing together with Celsuis to its un-pegging from the ETH and making things worse for both these companies.
Now 3AC is rumoured to have suffered important liquidations on crypto lending platforms, with some sources giving the $400 million figure. The firm is now said to face a possible insolvency.
Crypto finance is a very young industry, and this year’s market downturn is its first real challenge. Not everyone will pass it, but those who will are going to remember the other’s lesson well. In the end, the industry will get itself a whole new rulebook and most likely – a new set of regulations.
We only hope that retail investors will be able to pull through with minimal losses.