Crypto fund Three Arrows Capital faces potential insolvency after lender liquidation

The future of crypto hedge fund Three Arrows Capital hangs in the balance as the firm faces potential insolvency after being liquidated by its lenders.

According to well-placed sources, the investment firm — which counts the likes of options exchange Deribit and financial services firm BlockFi among its venture bets — is in the process of figuring out how to repay lenders and other counter-parties after it was liquidated by top tier lending firms in the space. 

Sources declined to share the names of those firms on the record for fear of reprisal, but three people said the liquidation totaled at least $400 million. They added that the firm has maintained limited contact with its counter-parties since being liquidated. 

The liquidation event is just one of several setbacks by the firm, which has backed projects like Avalanche, Polkadot, and Ether which are all down 57%, 38.8%, and 47% over the last 30 days respectively. 

The fund sustained significant losses during the collapse of the Terra ecosystem last month, after investing heavily in its native token LUNA. 

The firm, which reportedly managed approximately $10 billion at market peak by some estimates, is led by former classmates Su Zhu and Kyle Davies. 

Zhu, co-founder and CEO of Three Arrows Capital, addressed rumors regarding the crypto investment firm’s operations and solvency in a tweet Tuesday evening. 

"We are in the process of communicating with relevant parties and fully committed to working this out," he said. 

Representatives from Three Arrows did not respond to messages seeking comment. 

Zhu — who up until a few weeks ago was a vocal crypto bull — recently took to Twitter to admit that his 'supercycle' bull case on the crypto market was "regrettably wrong."

"Supercycle price thesis was regrettably wrong, but crypto will still thrive and change the world every day," he said at the end of May.

The supercycle was an idea pushed by Zhu that suggested the crypto market would gradually rise during this market cycle, avoiding a sustained bear market.

In an interview on the UpOnly podcast in February 2021, Zhu suggested that bitcoin's price could go as high as $2.5 million per coin if bitcoin were to capture the same market value as gold.

The headline of this report has been updated for clarity.