Small talk: what the hell happened to 3AC?

Last week, the collapse of Three Arrows Capital, a fund that once had more than $10 billion in assets under management, is now a debtor. How did this all happen? Will this spill over to other crypto funds and companies? What does this mean for the future of cryptocurrencies? Let’s take a look today.

What is 3AC?

Before diving into what’s going on, we need to understand the fund’s background. 3AC was founded in 2012 by Su Zuhou and Carl Davis.

They started 3AC with $1.2 million in capital, and their first office was in their living room. Their initial focus was on trading traditional emerging market currencies. The company grew to more than thirty employees in three years. It wasn’t until the two founders started dabbling in cryptocurrencies that things started to turn around. In 2017, Su said, he began to realize the potential of cryptocurrencies. In an interview with Bloomberg, he said that at the end of 2017, only from the talent and energy of young people involved in the field, it became clear to me that cryptocurrencies would follow the creative destruction cycle of the Internet and eventually become a cross-financial, technological , cultural and political paradigm shifts.

In 2018, 3AC almost became a cryptocurrency-focused company, when Bitcoin approached $3,800, which Su called the bottom of the bear market. We all know what happened over the next two years. With the advent of the bull market cycle, 3AC has made great returns and riches. Now, 3AC’s investment strategy is focused on trading Bitcoin and Ethereum in the derivatives market.

Derivatives remain the company’s main business, according to Bloomberg’s interview. But over the years, 3AC’s investment strategy has diversified. The fund started investing in crypto companies in the early stages of the project.

Now when I look back at its portfolio, they are actually pretty solid. Given that Su and Carl are so well-known in the field, we can be sure that they have participated in seed rounds for many of these projects, and at prices that we ordinary people can only dream of.

No wonder their AUM has ballooned to over $10 billion. According to the founders, they never accepted outside funding, which means it was their own money. Speaking of founders, they are popular in the crypto community and active on Twitter. They regularly post about market movements and are also not against the occasional spam post.

Many on Twitter believed their public statement was a form of psychological manipulation designed to mislead retail investors into trading in the opposite way. This was especially evident last year, when Su claimed he was quitting Ethereum because it had abandoned its own community. However, after about a month, 3AC bought more than 150,000 ETH, according to Nansen analysis. The above is some background knowledge. But why did it drop so quickly? Like everything in life, it started with a really bad bet, and that bet was Terra.

Terra’s collapse

Unless you’ve lived under a rock for the past few weeks, you must have heard of the Terra LUNA and UST debacles.

3AC is a major backer of Terra and works closely with LMG. Now we all know about Terra. The death spiral caused the collapse of Luna’s value, making it infinitely minted. How much is 3AC’s Luna worth now? About $670. The actions of the LFG in the wake of the crash had a huge impact on the broader cryptocurrency market. Because it has to sell more than $3 billion worth of bitcoin in order to keep the peg, which naturally drives down the price of bitcoin.

According to a recent Wall Street Journal article, Carl Davis said they initially managed to deal with the disaster. But market conditions after Terra only made things worse. This all coincides with a “toxic” macro environment and bad cryptocurrency sentiment.


By now everyone knows that 3AC is the largest holder of the Grayscale Bitcoin Trust or GBTC. For those unaware, the Grayscale Bitcoin Trust is an investment vehicle that was one of Bitcoin’s first structured institutional products, allowing institutional investors to acquire Bitcoin without buying and storing Bitcoin spot open.

Given that this is one of the main ways these big players trade, the deal has been at a premium for years. That premium has proven to be lucrative for a company like 3AC from which it can arbitrage. However, with all the ETF offerings we’ve seen over the past year, this Grayscale premium has turned into a discount.

This discount has continued to expand over the past few months. Knowing that ETFs would “eat” their lunch last year, Grayscale began aggressively applying to convert its Bitcoin Trust into an ETF. However, the U.S. Securities and Exchange Commission (SEC) has been rejecting the application.

3AC believes that this discount will be reversed immediately once the ETF is approved. The thinking at the time was that if it were an ETF, its NAV should track Bitcoin’s price more closely. This is what Su said on Twitter last year. In the weeks following the Terra debacle, 3AC put a lot of focus on the GBTC carry trade.

For example, in early June, they pitched the idea to numerous investors looking to secure outside funding. According to an article by TPS Capital, the investment management arm of Block 3AC, the carry trade requires a 20% management fee. 3AC was reportedly pitching the deal on June 17, just days before the collapse rumors began to surface. No one knows how many people choose to invest now.

Regardless, the continued widening of the GBTC discount over the past few weeks has only worsened 3AC’s own GBTC positions, as well as those of clients who might have invested in the deal. We do not know when 3AC closed their GBTC position. But as of June 17, Bloomberg updated its GBTC holdings tracker and 3AC is no longer listed as a holder. Perhaps they were forced to liquidate all of their GBTC due to a string of margin calls and liquidations.

The collapse of stETH

This is 3AC’s long-term bet. Although stETH is not designed to be pegged to ETH, it is widely believed that it should not deviate from parity.

This is a yield-generating token that will be redeemable for ETH when the network transitions to proof-of-stake (planned to happen at some point).

Unfortunately, the price of stETH started to drop relative to ETH. This has caused large players in the space, like Alameda, to swap their stETH for ETH. In the Curve pool, this caused the price of stETH to drop further and drained the Curve pool of ETH, making it unbalanced. But it’s not just Alameda that is selling, 3AC is also exiting its position. Just two days after Su tweeted bullish stETH, they swapped over 22,000 of stETH for ETH.

Rumors of 3AC’s collapse began to spread not long after Celsius announced it would stop withdrawals. The message states that Su and Carl have not tweeted for several days, that Su has deleted his Instagram, and that they are abandoning their stETH positions. In addition to that, it points to some BitFinex leaderboard data that shows how big their losses are.


It wasn’t until 3AC got into trouble that stories about how much leverage the company had taken on since the Luna debacle began to surface. Those funds were borrowed from many of the largest lenders. As 3AC’s capital position continues to deteriorate, they also appear to be taking risks in order to make some money back. This led to their losses increasing and digging a bigger hole for themselves.

In the days that followed, reports began to emerge about what exactly the 3AC team was doing. Essentially, projects will hand over the funds they raise to 3AC, and 3AC will help the project team generate revenue with those funds, who knows what exactly they are doing with the funds and how they generate those benefits. Unfortunately, the project that manages the funds for the 3AC has really been unable to reach the 3AC team lately.

These statements about 3AC’s management of project funding have led to statements from many of the companies that have received investment from them. These include Avalanche, dYdX, and more. But the bigger question of 3AC’s debacle was not whose money they lost, but who they both touched.


The market’s attention turned to 3AC’s other investors. Apparently, the company has taken a lot of loans from many cryptocurrency lenders in the space. And they have trading accounts on multiple exchanges that are also on the verge of being liquidated. Some lenders had to make statements about the actions they had taken when the rumors swirled.

Considering that Celsius’ move to suspend withdrawals just a few days ago has also hit the entire lending industry. Both Block phi and Genesis mentioned that they had liquidated a trading partner’s collateral.

Of course, they didn’t say any names. In the case of Genesis, they said they did have losses, but they were contained and they would take legal action. According to reports, bitmax had a 3AC trading account with $5 million in debt, which they have closed. This did not affect their other accounts, and they will also take legal action.

However, one lending platform that does seem to be affected by the 3AC is Finblox, which has invested in Finblox, which offers people up to 90% in cryptocurrency returns.

Last week Finblox had to limit withdrawals on its platform to $1,500 a day. Now, speculation continues about who else is in contact with 3AC and who lends them cryptocurrency. There’s also the question of what will happen to those projects that 3AC invests in? They’ve been very active in seed or strategic rounds over the past three years, participating in some of the most high-profile funding rounds.

Considering these are earlier rounds, this means that many tokens are likely locked in contracts. This increases the likelihood that 3AC’s shares will be sold off at the moment of unlocking.

Now, the founders have finally broken their silence, saying they are not considering selling the asset or the possibility of being acquired by another company.

in conclusion

The above is most of what we know about 3AC so far, with more to be revealed in the days, weeks and months to come.

Any company that wants to buy 3AC now has to take on all the debt it has accumulated. It is also difficult for 3AC to recover from asset sales given current cryptocurrency prices. So what does it mean for the crypto space?

One of the biggest impressions I have of this debacle is the recklessness of the institution. We’re always chattering about institutional adoption and how it’s making the crypto market more mature. However, their high leverage and interdependence have paralyzed the market.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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