Three Arrows Capital borrowed from lending firm Genesis, Committee formed for liquidation process.
Failed crypto hedge fund Three Arrows Capital (3AC) has been in the spotlight because it has defaulted on debt obligations for multiple companies in the crypto space. As a consequence, big players in the space collapsed following 3AC into insolvency. The crypto hedge fund filed for bankruptcy in the state of New York. This tactic allows them to gain time and prevent its clients from seizing 3AC’s assets to collect their debts.
However, the liquidation process of 3AC’s assets has begun ordered by a court in the British Virgin Islands led by financial advisory firm Teneo. The company published a document detailing the process which was published today. 3AC took a $2.36 billion loan with Genesis. The report that Teneo’s document highlights the total outstanding debt from the failed crypto hedge fund with the lending firm for the first time since rumors of potential insolvency emerged.
Genesis is backed by Digital Currency Group (DCG), a crypto investment fund founded by Barry Silbert. The report claims a division owned by the firm, Genesis Asia Pacific, granted an undercollateralized loan to 3AC.
In June 2022, Genesis began a legal process to compel the failed crypto hedge fund to honor its debt. The company filed for an arbitration process with the American Arbitration Association (AAA). This was probably one of the reasons that led 3AC to file for bankruptcy. The report claims the arbitration process has been paused as a result of the liquidation process led by Teneo. TheBlock quote a DCG spokesperson on 3AC’s default of its debt with Genesis: Both the DCG and Genesis balance sheets remain strong. With no remaining exposure to Three Arrows Capital, Genesis continues to be well-capitalized and its operations are business as usual.
In total, the report claims, Genesis’ loan to 3AC was backed by 17 million shares from the Grayscale Bitcoin Trust (GBTC), Grayscale is a DCG subsidiary; 446,000 shares in the Grayscale Ethereum Trust; 2 million Avalanche (AVAX) native token, and 13 million NEAR’s tokens. Back in June, Michael Moro, CEO at Genesis, confirmed that they liquidated a “large counterparty” to mitigate losses. According to the executive, this party failed to meet a margin call. Thus, Genesis was forced to hedge the liquid collateral. At that time, Moro said clients’ funds were not affected. The document published by Teneo claims Moro was “more than likely referring to 3AC”.
Furthermore, the document lists the crypto hedge fund’s outstanding debts and the companies impacted by 3AC’s default. In addition to Genesis, the documents show Celsius, Arrakis Capital, CoinList Services, DRB Panama, SBI Crypto, Voyager Digital, and others lent money to 3AC.
A five-member committee of creditors of bankrupt hedge fund Three Arrows Capital (3AC) has been formed, according to three sources with knowledge of the matter. The committee is comprised of Genesis/ Digital Currency Group, Voyager, CoinList, Blockchain.com and Matrixport, the sources said. Creditors voted based on their voting power (size of their claim) and the five members were ultimately chosen.
Teneo, the liquidator of 3AC, declined to comment when reached. Four of the five members are mentioned in the 3AC affidavits obtained and reported by The Block earlier today, except Matrixport. One of the sources said Matrixport has also been added to the creditors' list. The Block has learned that Teneo will publish updated affidavits.
3AC had grown into one of the crypto industry's biggest hedge funds before May's collapse of the Terra ecosystem left it facing significant losses. Last month, a court in the British Virgin Islands appointed financial advisory firm Teneo to handle 3AC's liquidation and 3AC filed for Chapter 15 bankruptcy in New York a few days later. Collapsed 3AC is owed 27 crypto companies approx. $3.5 billion.
The largest creditor on the list is Genesis Asia Pacific Pte Ltd., a unit of the brokerage subsidiary of Digital Currency Group (DCG), which had loaned $2.3 billion to 3AC. Genesis CEO Michael Moro recently said that DCG had taken on some of Genesis’ liabilities.
Also included among creditors are 3AC co-founder Zhu Su, who is seeking $5 million, and 3AC co-founder Kyle Davies’ wife Chen Kelly, who is seeking $65 million. The Block has reached out to Genesis/ Digital Currency Group, Voyager, Blockchain.com and Matrixport for comment and will update this story should we hear back. Continuing to monitor the situation closely as updates slowly unravel.
