According to reports, Blockchain.com, a cryptocurrency exchange, is on verge of losing US$270 million on loans it made to the now-defunct crypto hedge fund Three Arrows Capital (3AC). The news comes several days after Singapore-based 3AC filed for Chapter 15 of the U.S. Bankruptcy Code, seeking protection from creditors following one of the year’s most notorious blow-ups in the crypto collapse. Chapter 15 enables international debtors to protect their U.S. assets throughout bankruptcy proceedings, by facilitating cooperation between the U.S. and foreign courts.
Due to a confluence of falling cryptocurrency prices and poor risk management, Three Arrows Capital, which claimed to manage billions of dollars worth of assets early this year, crashed, leaving numerous crypto lending firms exposed. At least US$400 million in liquidations were incurred by the company by mid-June, prompting reports of the potential of collapse.
In the four years that Three Arrows has been a counterparty of Blockchain.com, Peter Smith, the CEO of the company, noted that Three Arrows has borrowed and returned more than US$700 million in cryptocurrencies. In the letter dated June 24, Smith also highlighted that Blockchain.com “remains liquid, solvent and our customers will not be impacted.”
Blockchain.com and the derivatives exchange Deribit were reportedly two creditors pushing for Three Arrows to liquidate around a week ago. Smith claimed 3AC “defrauded the crypto industry” in a Bloomberg News article and stated that his company wanted to hold them liable to the fullest extent of the law.
3AC had also received a default notice from cryptocurrency brokerage Voyager Digital (VOYG.TO) in June as a result of the fund’s failure to make the minimum payments on loans totaling 15,250 bitcoins and US$350 million in USDC. After Voyager revealed that it was exposed to 3AC, its stock price fell. Even Genesis Trading, a digital asset exchange, also disclosed the previous week that it had exposure to 3AC but has reduced its losses as a result of the hedge fund’s failure to meet a margin call.
Since its inception in 2011, Blockchain.com has been one of the most successful firms in the cryptocurrency industry. It created one of the first blockchain explorers and online browser wallets. The Luxembourg-based company became the first crypto sponsor of the U.S. National Football League’s Dallas Cowboys this year.