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Crypto hedge fund Three Arrows Capital (3AC) files for bankruptcy

 


Crypto hedge fund 3 Arrows Capital is set to become another pillar of bear market headlines in 2022, joining the ranks of brutal bear market moments that include the sinking of Terra Luna and the CeFi drama.


While rumors about the status of 3AC have been circulating for several weeks, only a few details with concrete information have been released so far. That will change this week as new reports show that 3 Arrows Capital has filed for Chapter 15 bankruptcy in New York.


Dozen Headaches & 3 Arrows files for bankruptcy

Everything can be rosy and sunny in a bull market -- and 3 Arrows certainly saw that with around $10 billion in AUM at the start of the year. However, as market structures have changed this year, business operations have also changed.


The revelations began in early June with speculation that 3AC had defaulted on payments owed, most notably about $80 million to derivatives exchange Deribit. After 3AC co-founders Zhu Su and Kyle Davies were silent for about a week, Su posted this tweet , essentially confirming that 3AC was facing serious liquidity problems.


Since then, it's been one after the other. CeFi platform Voyager Digital said it could lose more than $650 million in the collapse of 3AC , according to the Financial Times , and the platform has since suspended withdrawals and trading. The other CeFi provider BlockFi also suffered losses of around $80 million, according to the Times.


This week, 3 Arrows filed for Chapter 15 bankruptcy in New York. Chapter 15 is designed to handle “cross-border bankruptcies.” The strong headwinds for Bitcoin this year is an example of the challenges the crypto market has had to deal with of late.


State of CeFi: Pulse Check

Centralized financial platforms, commonly referred to as CeFi, aim to take the utility of DeFi and integrate user-friendly mechanisms and UI to attract consumers with aggressive returns. However, a number of these companies are surrounded by speculation, as speculators believe their credit is at high risk and their liquidity volatile.


And then comes the next problem: even if liquidity is not an immediate concern for a CeFi platform in a downturn, users' belief in potential liquidity problems leads to a "bank run" and now liquidity becomes an issue due to mass withdrawals.


Many believe that some CeFi platforms have employed riskier processes to generate returns, adding another layer of complexity.

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