Three Arrows Capital to become latest casualty of crypto crash

theguardian.com:

The crypto hedge fund Three Arrows Capital has been lined up for liquidation just days after it was accused of defaulting on a multimillion dollar loan to the crypto bank Voyager.

The consultancy firm Teneo confirmed that two individuals from the beleaguered investment house’s British Virgin Islands offices had been appointed to oversee the liquidation, after Sky News broke the story.

The Singapore-based firm is just the latest casualty in a string of financial failures caused by the crypto crash, started by the collapse of the “algorithmic stablecoin” Terra in May and the failure of the crypto bank Celsius earlier this month.

Three Arrows Capital (3AC) had been deeply invested in a number of troubled cryptocurrency projects, including Terra, as well as Axie Infinity, a “play to earn” game that lost almost $700m (£577) to a hack from North Korea last year, and BlockFi, a centralised cryptocurrency exchange that laid off hundreds of staff in mid-June.

It also had sizeable leveraged investments in bitcoin, Ethereum and other cryptocurrency assets, all of which have seen falls of up to 60% in the first half of 2022.

A stablecoin, like the name suggests, is a type of cryptocurrency that is supposed to have a stable value, such as US$1 per token. How they achieve that varies: the largest, such as tether and USD Coin, are effectively banks. They hold large reserves in cash, liquid assets, and other investments, and simply use those reserves to maintain a stable price.

Others, known as «algorithmic stablecoins», attempt to do the same thing but without any reserves. They have been criticised as effectively being backed by Ponzi schemes, since they require continuous inflows of cash to ensure they don't collapse.

Stablecoins are an