Mechanism Capital among funds with assets stuck in FTX, exploring legal options

Mechanism Capital, a crypto venture capital firm with hundreds of millions of dollars in assets, has money tied up in FTX, the embattled crypto exchange.

A backer of well-known crypto startups — such as Nansen, 1inch and Arbitrum — Mechanism is one of the many investment firms currently unable to withdraw funds from FTX, according to two people with knowledge of the matter.

The exact amount it has stuck in FTX is unclear, but Andrew Kang, co-founder and partner at Mechanism, said the sum is “non-trivial” — and the company is exploring legal options. 

“Like the rest of the market, we have taken a hit — but what’s most important for us is that we are still trading, actively assessing investment opportunities and are able to support founders we work with,” Kang told The Block.  

Mechanism’s core trading and venture capital arm is comprised of proprietary capital. So, too, is a $100 million fund that the company launched in January to invest in play-to-earn gaming startups.

Earlier today, FTX’s head of institutional sales sent a letter to VIP clients saying he had resigned, and stating that his team was “completely in the dark” about the firm's potential insolvency over the course of this week.

A growing number of companies — from lenders to crypto exchanges — have issued statements about the nature of their exposure to FTX in the days since its spectacular collapse. The Block revealed on November 9 that some 10% of crypto venture capital firm Multicoin Capital’s total assets are stuck on the exchange.

Venture investors in FTX’s businesses are facing massive losses. Sequoia Capital, the venerable Silicon Valley investor, has already written down investments of $213.5 million in FTX to zero.

Still, Kang was at pains to emphasize Mechanism's success before this month's travails.

"We actually had a very profitable trading year among the wider market drawdown prior to the FTX incident," Kang said. "We were heavily short the market into the earlier implosions in April, May and June."

Update: Story updated with comment on conditions before FTX's woes.