A court in the British Islands has ordered the liquidation of the Singaporean crypto hedge fund Three Arrows Capital (3AC) as the crypto winter continues to send shockwaves across the entire ecosystem.

According to an exclusive report from Sky News published this morning, a firm called Teneo has been appointed by the court to handle the insolvency of the firm founded by Su Zhu and Kyle Davies.

The news comes only days after Voyager Digital – a US-based pure-play crypto exchange – sent a notice of default to 3AC after the fund failed to repay approximately $650 million loaned by the platform in the form of 350 million USDC tokens and 15,250 BTC.

Other brokers with alleged ties to 3AC have also gone into trouble as is the case of BlockFi and Celsius, with the latter having been bailed out by Sam Bankman-Fried in a bid to prevent further contagion.

Also read: Is FTX Risking too Much After SBF Bailouts of Crypto Firms?

Meanwhile, Goldman Sachs has been reportedly raising money to purchase the assets of Celsius weeks after the platform paused all withdrawals from users “due to extreme market conditions”.

How Much Does Three Arrows Capital Owe?

Research by Ryan Selkis and his company Messari estimates that 3AC’s total debt could be about $1.5 billion. The downfall of the hedge fund and the liquidity issues affecting several exchanges seem to be connected, but it’s still uncertain who else might be at risk. Regulations on how exchanges disclose their financial status in the crypto space are, at best, unclear.

None of the founders of 3AC have made public comments about the company’s situation, except for a vague tweet from Zhu Su on June 14, in which the investors stated they were “in the process of communicating with relevant parties and fully committed to working this out.”

3AC’s woes can be traced back to the collapse of the Terra ecosystem as the fund had a sizable exposure to LUNA. A sharp drop in the value of this token left 3AC with heavy and seemingly unrecoverable losses.

A report from the Wall Street Journal published days ago stated that the co-founder of the hedge fund, Kyle Davies, confirmed that they lost nearly $200 million amid the collapse of Terra’s native tokens.

Davies also confirmed that the fund had around $3 billion in assets under management by the end of April and said that its ties with Terraform Labs came from the firm’s participation in a $1 billion capital raise from the Luna Foundation Guard (LFG) – the entity that was supposed to maintain the value of UST pegged to $1.

“The Terra-Luna situation caught us very much off guard”, Davies told the Journal. Same as his partner, the crypto investor added: “We are committed to working things out and finding an equitable solution for all our constituents”.

In addition to Terra’s demise, the crypto winter has melted the valuation of most digital assets including the strongest ones in the ecosystem like Bitcoin (BTC) and Ethereum (ETH). What seems obvious now is that 3AC gambled more than investors’ money as they also amassed heavily leveraged positions with top brokers such as Voyager.

The negative equity of these loans could have eaten a large portion of investors’ capital, which is why a court may have decided to liquidate the firm. Sadly, those who invested money with 3AC would have to wait in line as creditors have a higher claim than shareholders in these instances.

Who Else Might be Exposed to 3AC’s Woes?

It remains to be seen who else in the ecosystem was involved with 3AC, what remains unclear is how a relatively small fund managed to borrow so much money from different exchanges without setting off alerts across the industry.

In this regard, a report from Forbes showcased FTX’s Bankman-Fried’s thoughts on the current state of the industry.

“There are some third-tier exchanges that are already secretly insolvent”, SBF stated.

He added: “There are companies that are basically too far gone and it’s not practical to backstop them for reasons like a substantial hole in the balance sheet, regulatory issues, or that there is not much of a business left to be saved”.

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