Rumours are circulating about Three Arrows Capital’s impending insolvency. Once a prominent crypto hedge fund with an estimated R160 billion in assets, it is now “in the process of talking with relevant parties and totally committed to sorting this out,” according to a vague tweet from co-founder Zhu Su on Wednesday.
Three Arrows Capital was a substantial investor in the now-defunct Terra LUNA ecosystem. It possessed vast amounts of LUNA, which were now almost worthless. It also had financial relations with Celsius, which halted withdrawals on Monday to avoid insolvency.
Three Arrows has also been recognized as a major consumer of the contentious’ stablecoin’ Tether, which has a history of decoupling from the US dollar. Protos discovered that the Bitfinex subsidiary transferred at least R10.7 billion in USDT directly from Tether’s treasuries to the hedge fund. The total amount handled is much greater.
Three Arrows Capital has declined to react to media enquiries
The hedge fund was also heavily involved in Ethereum 2 liquid staking schemes. Ethereum 2 is hazardous, leveraged, and centralized, according to Protos. ETH derivatives risk undermining Ethereum-based financial contracts due to the financial incentive to stake ETH with a liquid staking service provider. Three Arrows Capital’s position in Ethereum 2 is particularly risky.
stETH, a supposedly ETH-pegged token, has been issued by Lido, Ethereum 2’s largest liquid staking service provider. Three Arrows Capital was heavily invested in this peg, which has already broken by -5%. If this continues, it might lead to liquidations across decentralized finance (DeFi) and severely harm Three Arrows Capital.
Co-founder Zhu Su tweeted a reassuring tweet by early Ethereum investor Konstantin Lomashuk on June 10. “stETH is working just as it should,” he added, adding that “stETH produced by Lido is backed 1 to 1 ETH.”
Just two days later, on June 13 at 9:45 p.m. New York time, the stETH-ETH peg fell to 0.91 to 1.
At the time of publication, one stETH was valued only 0.942 ETH. The two assets are meant to be interchangeable. Kyle Davies, Su’s co-founder, has not reacted publicly in six days.