Crypto hedge fund Three Arrows Capital set for liquidation

Fund has become emblematic of the industry’s excesses during last year’s bull run

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A British Virgin Islands court ordered the liquidation of Three Arrows Capital, the crypto hedge fund that bet big on everything from Bitcoin to the ill-fated Luna tokens and then succumbed to a US$2 trillion wipeout of the digital-asset markets.

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The court, which made the order on Monday, has appointed two partners at consulting and advisory firm Teneo to handle the liquidation, according to a person familiar with the matter, who declined to be identified because the information is confidential.

Teneo will oversee talks with potential buyers that may be interested in Three Arrows’s remaining holdings, such as tokens or equity stakes in crypto startups, the person added. A website will be set up to locate creditors and determine who is owed what. Three Arrows has invested in a range of decentralized finance platforms such as Aave and dYdX, as well as crypto infrastructure firms such as StarkWare, according to its website. It’s not immediately clear what or how much of these holdings will be subject to a sale.

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The court order brings down the curtain on one of crypto’s most famous hedge funds, founded by Zhu Su and Kyle Davies, former Credit Suisse traders, at the kitchen table of their apartment in 2012. Their fortune rose along with the crypto market bull run, and Three Arrows’ assets under management were estimated to be about US$10 billion in March, according to blockchain analytics firm Nansen. In April, Zhu said the fund is planning to move its headquarters to Dubai from Singapore.

Three Arrows has become emblematic of the industry’s excesses during last year’s bull run, when firms built up the leverage that hobbled them as the market turned. This month, a cryptic tweet from Zhu hinted at Three Arrows’s reversal of fortune and growing plight, setting off a market spasm.

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The liquidation of Three Arrows “will present a setback to the industry’s policy efforts and ongoing engagement in DC,” said Ryan Selkis, co-founder of Messari Inc., a crypto data and research platform. “Many of the centralized institutional leaders in the space had poor risk controls, and put customer funds at risk.”

The fund’s liquidity crunch is among a series of crises that rippled through the battered crypto sector during this year’s downturn, including the implosion of the TerraUSD stablecoin and liquidity issues at lenders Celsius Network and Babel Finance. Three Arrows’s woes have hit firms such as crypto broker Voyager Digital Ltd., which this week said it issued a notice of default to Three Arrows after failing to get repayment on a loan worth roughly US$675 million. Earlier, crypto lender BlockFi and prime brokerage Genesis said they had to liquidate one of their large counterparties recently, without naming the counterparty.

Three Arrows’ fund is incorporated in the British Virgin Islands. The Commercial Court there orders a company to be liquidated if it is regarded as insolvent because it cannot pay its debts. Companies can also voluntarily liquidate, though that’s less common.

Sky News reported on the liquidation order earlier.

Bloomberg.com

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