Three Arrows Capital failed to meet margin call, BlockFi was one of the liquidators

According to the Financial Times , BlockFi is one of the companies that liquidated the loan collateral positions of Singapore-based crypto hedge fund Three Arrows Capital (3AC) . People familiar with the matter revealed that 3AC borrowed Bitcoin from BlockFi but was unable to meet margin calls after the market took a sharp turn for the worse.

There have been rumors of 3AC going bankrupt. The Block previously reported that Three Arrows Capital’s total liquidation amount was at least $400 million, and it was facing potential insolvency risk.

BlockFi CEO Zac Prince did not mention the specific name of the counterparty. He said: "We can confirm that we recently exercised our best business judgment on a large customer who failed to fulfill its over-collateralized margin loan obligations. We accelerated loan collection and fully liquidated or hedged all related collateral. We believe we were one of the first companies to take action with this counterparty."

News surrounding the 3AC crisis appears to have affected Finblox, a Hong Kong-based lending platform that allows investors to earn yield on their digital assets. Finblox said it has set a monthly withdrawal limit of $1,500 and suspended rewards in light of uncertainty over Three Arrows Capital’s solvency. Three Arrows Capital invested $3.6 million in Finblox last December.

Founded last year, Three Arrows Capital has peaked at $10 billion in assets under management and has positions in many popular projects and companies: Bitcoin, Ethereum, Solana, Axie Infinity, and BlockFi.

On-chain analysts noted that Three Arrows Capital appears to have been selling assets, including $40 million worth of Lido Staked Ethereum (stETH). Analysts believe this is to prevent $264 million in Aave loans and $35 million in Compound loans from entering liquidation.

Moon Overlord, an anonymous analyst on Twitter, shared a screenshot of the blockchain data platform Nansen , showing that Three Arrows Capital’s wallet was associated with five large transactions in the past week and had exchanged at least 30,000 stETH.

Another cryptocurrency analyst, Onchain Wizard, estimated that if the price of Ethereum drops to $1,042, the loans will be forced to liquidate.

While the analysis that went viral on social media doesn’t definitively confirm that those on-chain addresses belong to Three Arrows, statements from its founder Su Zhu hint that the company is going through difficulties. “It’s not like 3AC is saying, ‘Hey, this is definitely my address,’ but everyone assumes it’s related to 3AC,” Eden Network co - founder Caleb Sheridan told Decrypt.

If the collateral securing the two loans is indeed liquidated, it would also be bad for lenders, such as Celsius . As Twitter user degentrading pointed out, 3AC is one of the largest borrowers and customers of crypto lenders, and if 3AC went bankrupt, it would trigger a domino effect, making the current market downturn even worse.