Three Arrows Capital (3AC), once considered the world’s most successful crypto hedge fund, seems to be the next crypto giant on the chopping block. The hedge fund became popular by pushing the narrative of a supercycle, essentially saying that we’re on the cusp of mass adoption and the price will go parabolic for most crypto assets. Has that been your experience with crypto lately?
Three Arrows Capital took large positions in alternate layer 1 blockchains like Avalanche (AVAX), Solana (SOL) and Polkadot (DOT), as well as making private investments in crypto companies. Most of these investments are down 60%+. Among these poorly performing investments was a purchase of roughly 10.9M LUNA for $560M, which is now worth $670.
One of the tell-tale signs that the fund was in serious trouble was when co-founder Zhu Su went radio silent on Twitter. Zhu Su was known as a very outgoing, bold character online, similar to LUNA’s Do Kwon. After being uncharacteristically quiet, Zhu Su tweeted out “We are in the process of communicating with relevant parties and fully committed to working this out.” Oof.
Recently, it came out that 3AC was long in markets all over the place, and as margin calls came in, the hedge fund did not respond and started incurring liquidations. While these numbers are not confirmed, there are estimates going around that 3AC lost almost all of the money their fund managed–nearly $18B from the peak.
3AC took many degen positions, taking out a lot of margin to juice their returns. Much of the criticism around 3AC right now isn’t about them losing money, but it’s about the fact that they didn’t make any attempt to implement basic risk management.
One of the things hurting 3AC right now is that synthetic assets which were considered fairly safe have been in a downturn recently, trading below the underlying assets. Among these is GBTC, which is trading some 34% below BTC prices, and stETH, which is trading nearly 10% below ETH and facing liquidity problems for people selling out of their position.