Crypto exchanges FTX, Deribit and BitMEX have liquidated Three Arrows Capital's positions over the past week after the crypto hedge fund known as 3AC failed to meet margin calls, three people familiar with the matter told The Block.
As a result, Singapore-based 3AC owes about $6 million to BitMEX, said one of the people. Another source described the impact on FTX as "tiny" and said Deribit, which counts 3AC among its investors, had only taken a "small" hit.
Founded in 2012 by former classmates Su Zhu and Kyle Davies, 3AC had grown into one of the largest and best known crypto hedge funds. But last month's collapse of the Terra ecosystem resulted in a significant hit for 3AC as its investment in Terra's native luna token sank to almost zero.
Terra's fallout and the ensuing crypto market turbulence have left 3AC reeling. The hedge fund has also failed to meet margin calls — when an exchange seeks fresh capital to back a leveraged bet that's turning sour — on crypto lender BlockFi, the Financial Times reported Thursday.
A BitMEX spokesperson confirmed to The Block that the exchange has liquidated 3AC's positions. They declined to comment on the owed amount but said BitMEX's legal department is in touch with 3AC on the next steps.
"This was collateralised debt and did not involve any client funds," the spokesperson added. "We are not going to be like other brands and wax poetic about our limited exposure and strong capital position — instead, we will demonstrate it by providing our users a reliable and liquid trading venue every day, no matter the situation."
Deribit's CEO John Jansen declined to comment specifically to The Block when reached but said, "we can confirm that Three Arrows Capital is a shareholder of our parent company since February 2020. Due to market developments Deribit has a small number of accounts that have a net debt to us that we consider as potentially distressed. Even in the event that none of this debt is repaid to us, we will remain financially healthy and operations will not be impacted."
An FTX spokesperson said the exchange does not comment on individual customers or accounts "unless required by law."
A spokesperson for Bitfinex, another exchange where 3AC traded, said the fund had closed its positions at a loss without having to be liquidated. 3AC has withdrawn all its funds from the Bitfinex platform and Bitfinex hasn't incurred any losses.
The Block has reached out to 3AC for comment and will update this story should we hear back.
Neither 3AC nor its founders Zhu and Davies are yet to issue a public statement on their situation. Several people told The Block that they'd tried to reach them in recent days, without success.
Zhu tweeted earlier this week that "we are in the process of communicating with relevant parties and fully committed to working this out."
With contributions from Frank Chaparro.
Disclaimer: The former CEO and majority shareholder of The Block has disclosed a series of loans from former FTX and Alameda founder Sam Bankman-Fried.
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