Three Arrows Capital is in a liquidity crisis, and BlockFi seems to be one cause.
Key Takeaways
On Tuesday, reports emerged that Three Arrows Capital suffered $400 million in liquidations from lending firms.
Today, the Financial Times reported that BlockFi was one company that was involved in those liquidations.
BlockFi has confirmed that it was involved in a large liquidation but did not explicitly confirm a connection to 3AC.
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BlockFi was one of several companies involved in the liquidation of Three Arrows Capital (3AC) according to the Financial Times.
BlockFi Likely Liquidated Its Position
On Tuesday, June 15, reports began to circulate suggesting that Three Arrows Capital was experiencing liquidity issues.
Sources suggested that 3AC’s lenders liquidated $400 million from the company. However, it was unclear which companies were involved in liquidation at the time of those reports.
Now, the Financial Times reports that the crypto lending company BlockFi is one firm that was involved in the situation.
BlockFi “was among the groups that liquidated at least some of 3AC’s positions,” the Times said on Thursday. More specifically, BlockFi reduced its exposure to 3AC’s positions, using collateral it had previously put down to back its own borrowing activities.
Yuri Mushkin, BlockFi’s chief risk officer, told the Financial Times that his firm exercised its “best business judgment… with a large client that failed to meet its obligations.” He also said that BlockFi was “one of the first to take action with this counterparty.”
Mushkin added that BlockFi held collateral in excess of the size of the loan. He then assured the public that BlockFi’s risk management policies will allow it to continue functioning during a difficult market.
BlockFi CEO Zac Prince reiterated Mushkin’s statements on Twitter, adding that the client “failed to meet its obligations on an overcollateralized margin loan.” Prince said that BlockFi “fully accelerated the loan and fully liquidated or hedged” the collateral.
BlockFi has not explicitly confirmed that the company under discussion is Three Arrows Capital. Rather, it says that its “policy is to not comment on specific counterparties.” However, the circumstances strongly imply that 3AC is the firm in question.
Three Arrows Commits to Recovery
Despite speculation that Three Arrows Capital is at risk of insolvency following mass liquidations, the company says it will stay afloat.
Company co-founder Su Zhu published a Twitter statement on Wednesday. There, he said that 3AC is “communicating with relevant parties and fully committed to working this out.”
3AC is one of the largest investment firms in the crypto industry. It has made investments in blockchain projects including Bitcoin and Ethereum and has invested in DeFi platforms such as Aave and Balancer. It has even invested in the NFT game Axie Infinity.
With so many partners, is still unclear which other firms were involved in 3AC’s liquidation. No other companies have confirmed involvement in 3AC’s liquidation as of Thursday, June 16.
Tether, though, has denied claims of exposure to 3AC alongside its denial that it is backed with Asian assets.
Disclosure: At the time of writing, the author of this piece owned BTC, ETH, and other cryptocurrencies.
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