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The US investment fund Three Arrows Capital may become the next crypto giant to fall, after Terra and perhaps even Celsius. The big difference is that this investment fund was widely trusted and respected, not for its brilliant ideas or blockchain applications, but purely because of their liquidity. And that is exactly where it seems to be going wrong now.
Is Three Arrows Capital liquid enough?
Three Arrows Capital (3AC) has reportedly failed to meet margin calls from its lenders, giving analysts and the market the impression that 3AC did not have as much liquidity as presented. The collapse of the crypto market has caused unforeseen liquidations (of financial positions, not of people).
Basically, 3AC is an investment company: they invest their funds, or borrowed money in crypto companies. They borrow cryptocurrency or money from lenders, but for this they have to deposit collateral. The collateral can consist of crypto, but also of stablecoins or fiat money, for example. If the value of the collateral decreases while they have a loan outstanding, the collateral must be replenished. Some lenders do not trust 3AC to meet these margin obligations due to insufficient liquidity.
Company will stay afloat
Despite speculation that Three Arrows Capital is at risk of bankruptcy following massive liquidations, the company says it will remain afloat. One of the company’s founders Su Zhu shared a sizeable thread on Twitter this week. There, he said 3AC is
“communicating with relevant parties and fully committed to working this out.“
Get your coins off exchange. This is not a drill, people! https://t.co/yzcdaekiql
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💥Bitcoin miner Bitfarms sold $34m #Bitcoin to boost liquidity.
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