The list of collateral victims of the liquidity crisis currently affecting crypto lenders is not fully known.
If in fact two dominoes have already fallen, it will take time to learn the names of the various firms that have been subjected to this debacle that has renewed a great deal of distrust towards the crypto industry.
It all started with the dramatic collapse of sister tokens Luna and UST in May, leading to the disappearance of at least $55 billion. We’ve since learned that hedge fund Three Arrows Capital, also known as 3AC, has invested heavily in Luna.
The episode revealed other interrelationships, highlighting a credit-dominated space with very few risk management mechanisms. In fact, Three Arrows Capital appears to be using the same bitcoin as collateral from multiple crypto firms. The more the bitcoin price fell, the less the hedge fund was able to repay its creditors.
So it should come as no surprise that 3AC has defaulted on a $667 million loan from Voyager Digital. Other platforms that have lent 3AC are BlockFi and Babel Finance. In a panic, the customers of these companies rushed to withdraw their money, but unfortunately the lenders did not have enough cash to meet these demands. As a result, a large number of crypto lenders have suspended withdrawals and other transactions. These include Celsius Network, Coinlon, CoinFlex and of course Voyager and Babel Finance.
Coinbase says it has no exposure to Three Arrows Capital
3AC was forced into liquidation by the British Virgin Islands court. Voyager filed for bankruptcy.
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The crisis seemed to primarily hit crypto lenders at first, but we are now learning that other players, and particularly large cryptocurrency exchanges, are also suffering. According to Coindesk, this is the case with Blockchain.com, which has a $270 million commitment from 3AC.
The news site wrote that CEO Peter Smith disclosed this in a letter to shareholders. Blockchain.com, founded in 2011, expects to lose money owed to 3AC, according to Coindesk. However, the trading platform believes that this will not affect its liquidity.
“Smith also emphasized in the June 24 letter that ‘Blockchain.com’ remains liquid and solvent and our customers will not be affected.”
Blockchain.com, which became one of the sponsors of the Dallas Cowboys NFL team this year, did not immediately respond to a request for comment.
Following the Blockchain.com reveal, TheStreet reached out to other major cryptocurrency exchanges to ask if they had been in touch with 3AC.
“Not Coinbase,” a spokesman told TheStreet in an emailed statement. Coinbase (coin) – Gate Coinbase Global Inc announces the most popular cryptocurrency trading platform in the US, The Street reported in an emailed statement.
At the time of writing, the largest crypto exchange, Binance, has yet to respond.