Three Arrows Capital’s co-founders Kyle Davies and Zhu Su in an interview on Friday said the firm is considering asset sales and bailout as the insolvency risk looms. Davies says, after suffering heavy losses from a market-wide selloff in digital assets, the company has hired legal and financial advisers to work on a final solution.
Kyle Davies asserts the TerraUSD stablecoin and LUNA collapse in May has impacted the assets under management of the firm. In April, the company had $3 billion in assets under management. However, he still believes in cryptocurrencies.
Currently, the company hopes to reach an agreement with lenders to get more time to work on a solution. The firm is operating normally as it seeks a solution.
Three Arrows Capital Is Finding a Solution, Says Kyle Davies
Three Arrows Capital is facing insolvency risks as top companies continue to liquidate their positions in the crypto hedge fund. Hence, Three Arrows is exploring options including asset sales and financial assistance from another firm, Davies told the Wall Street Journal on June 17.
The hedge fund lost a total of $60 billion in market capitalization due to the Terra collapse. The firm was able to withstand the loss, but the fall in prices of Bitcoin, Ethereum, and other cryptocurrencies led to more financial troubles.
Kyle Davies, a co-founder of Three Arrows Capital, said:
“The Terra-Luna situation caught us very much off guard, adding that the massive selloff was unprecedented. The Luna Foundation’s sale of bitcoin to help support TerraUSD also worsened declines in the value of bitcoin in May.”
With the fall in digital asset values, some lenders started asking for partial or full repayment on loans. Also, interest rate hikes by the U.S. Federal Reserve worsened the market selloff.
Currently, Three Arrows is still trying to quantify its losses and value of illiquid assets. It includes venture-capital investments in crypto companies and startups. Moreover, the company invested in other digital assets, which might be sold too.
Zhu Su, a co-founder of Three Arrows Capital, said:
“We are the biggest investors in the fund, and our intent was always for everyone to do well in it.”
Three Arrows Liquidates Lido Staked Ethereum (stETH)
Three Arrows Capital has large positions in the Grayscale Bitcoin Trust and Lido Staked Ethereum (stETH). The hedge fund has swapped most of the stETH tokens worth millions to USDT or USDC to repay their lenders. According to a report, BlockFi, FTX, Deribit, and BitMEX have liquidated their positions in Three Arrows Capital. Meanwhile, some institutions in Asia have also liquidated their holdings in Three Arrows.