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The great “3AC collapse” and protecting your crypto…

by , 20 July 2022
The great “3AC collapse” and protecting your crypto…
Three Arrows (popularly known as "3AC") is a crypto hedge fund based in Singapore.

The company had no retail customers, but it borrowed money from many crypto firms that did, such as Celsius and Voyager. That money was largely made up of customer deposits.

Three Arrows made a lot of risky bets with it.

Some of the money was invested in start-ups, but hundreds of millions went into crypto-based investment strategies, including $200 million in TerraLuna.
When TerraLuna crashed to zero, 3AC suffered such heavy losses it could not repay its creditors.
From bad to worse…
Top lending firms, among them digital asset broker Genesis and crypto exchange BlockFi, reacted by liquidating $400 million of 3AC's loans.
3AC's resulting liquidity crisis left companies like Celsius and Voyager in BIG trouble.

Suddenly they didn't have enough liquidity to serve their customers - so they froze withdrawals. Voyager went a step further and froze all trading.

Customers with assets with those companies are stuck in limbo. Not only are their assets trapped, they have no idea when they'll be able to access them or how much might be lost forever.

While Celsius and Voyager have grabbed most of the attention, they weren't the only crypto companies hit by the 3AC implosion...

The contagion went global…
Here are some of the companies affected, either directly or indirectly:

Blockchain.com: Crypto exchange Blockchain.com has announced it could lose as much as $270 million as a result of its exposure to Three Arrows, although CEO Peter Smith said in a shareholder letter that "customers will not be impacted."

Genesis: Its role as major 3AC creditor means Genesis potentially faces hundreds of millions of dollars in losses.
Babel Finance: This Hong Kong-based crypto lender froze withdrawals June 17 due to "unusual liquidity pressures”.
CoinFLEX: Crypto futures exchange, CoinFLEX halted withdrawals on June 24 because of "extreme market conditions."

8 Blocks Capital: Hong Kong-based 8 Blocks is a crypto trading firm, which accused Three Arrows of improperly taking $1 million to answer their margin calls, then "ghosting" 8 Blocks when it repeatedly tried to contact 3AC for an explanation.

FinBlox: A crypto staking platform that had loaned an undisclosed sum to 3AC. The company temporarily imposed a $1,500 monthly limit on withdrawals on June 16. They further raised the limit to $3,000 as it worked to undo the damage and return to normal operations.

Deribit: The derivatives exchange Deribit reported in court filings that Three Arrows had failed to repay a loan of $80 million.

Vauld: This Singapore-based crypto lending platform froze customer accounts July 4. But Vauld customers have more reason to hope than most - crypto lender Nexo has signed a term sheet to acquire the troubled firm.

If you think that’s bad enough, many crypto companies with no connection to 3AC are suffering from fears that they might be next to fail.

Binance, Nexo, KuCoin, and Crypto.com have all been forced to make statements to combat rumours that they had exposure to Three Arrows, were considering freezing withdrawals, or looking at imposing tighter withdrawal limits.

It's hard to say if the worst is over, or there are more ugly surprises ahead for crypto investors. But in the meantime, If you own some cryptos, then you want to make sure your crypto is safe.

How to protect your crypto from contagion
Use a wallet only you control - a wallet to which you own the private key.

That doesn't mean you need to lock your crypto away and forget about it. You can still trade, buy and sell crypto as much as you normally do. But you'll want to get your crypto off the exchanges and into a private wallet you control (like Trezor) as soon as the transactions are complete.

I’d also recommend you move any crypto on interest-bearing sites or DeFi sites that use complicated "yield farming" techniques.

Particularly ones that offer “too good to be true” yields (15%, 20%, etc).

Crypto has the potential to make investors very wealthy, but the 3AC meltdown is a stark reminder that the sector remains mostly unregulated and can be crazy risky.

Keep your crypto in a safe place and be very, very picky about the companies with whom you choose to do business.

Have you got Francois Joubert’s Top Five Small Cap Report?

If not?  You can find out how to claim a free copy here.

The great “3AC collapse” and protecting your crypto…
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