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News/From Billions to Bust: Inside 3AC's $1.1B Liquidation & Frozen Assets

From Billions to Bust: Inside 3AC's $1.1B Liquidation & Frozen Assets

Van Thanh Le

Dec 22 2023

5 months ago3 minutes read
A robot with a mosaic design represents anxiety amid cryptocurrency challenges

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The Aftermath of Liquidation and The Road To Creditor Recovery

Considered a giant within the cryptocurrency realm, Three Arrows Capital, more commonly recognized as 3AC, sent shockwaves through the industry when it announced its liquidation. Renowned liquidators estimated a recovery rate of approximately 45.74% for creditors wishing to reclaim their funds. 

As the dust settled post-announcement on December 18th, the bankrupt estate's asset valuation took center stage. The assets were pegged at $1.16 billion, paling in comparison to the claims standing at approximately $2.7 billion. However, amidst the chaos, settlements and claims provided a silver lining. 

Cryptocurrency hardware and laptops in impressionist still life represent complex finance.webp

Settlements with prominent entities including DCG, Genesis, and BlockFi managed to bolster the asset pool by $292 million. This measure was undoubtedly critical as total claims against the 3AC estate were valued at a staggering $3.4 billion. The asset breakdown further deepened the complexity of 3AC's financial predicament. 

Illiquid tokens, constituting a significant 82% of the assets, were valued at $563 million. Worryingly, these will only become vested by the end of 2026, with nearly $200 million slated for unlocking by 2024's end. Only a meager 6% were deemed liquid while equity and investments constituted a minor 6.9%. Meanwhile, the cash component stood at 4.8%, adding more strain to the situation. 

Staking and sales endeavors further reeled in earnings – $5.4 million from staking rewards, $34.5 million from liquid tokens, and $15 million from Non-Fungible Tokens (NFTs) being sold. However, the legal proceedings that emerged threatened to dash hopes of substantial recovery. 

The Freeze: Assets Under Siege And Legal Battles Brew

The British Virgin Islands court brought the hammer down, freezing assets amounting to $1.1 billion, linked to 3AC's co-founders Su Zhu and Kyle Davies, along with Davies' wife, Kelly Chen. Zhu, who was sentenced to house arrest, finally saw the light of day when he was released on December 20th. 

The court's dictate served as a chilling reminder of the allegations that had caused 3AC's downfall. The co-founders were held accountable for the dwindling fortunes of 3AC, which had propelled the firm into the eye of a $3.3 billion debt storm. 

Cubist portrait of 3AC founders in shades of blue and grey conveys instability.webp

The allegations triggered a domino effect, with Singapore's court ordering a domestic asset freeze on both Zhu and Davies. Zhu, in particular, felt the brunt of the storm when he was arrested in September. 

The significant blows to 3AC culminated in the firm filing for bankruptcy in the British Virgin Islands, a move propelled by the Monetary Authority of Singapore's prohibition order. 

Deciphering The Key Takeaway

The tumbling of Three Arrows Capital is a stark illustration of the unpredictable and volatile nature of the cryptocurrency market. The episode underscores the perils of high-leveraged financial strategies, especially the scale of the chasm between a bankrupt estate's assets and the claims against it. 

The convoluted legal procedures, including the freezing of assets, are reflections of the severe repercussions of financial mismanagement in the crypto world. As a cautionary tale for investors and firms within the industry, the 3AC saga emphasizes the importance of maintaining sound financial practices and ensuring regulatory compliance. 

Bitcoin fanatics and the crypto industry at large will evaluate the sequence of events keenly. It remains to be seen what the future holds for Three Arrows Capital and those entangled in this sticky web of liquidation, recovery, and frozen assets.

FAQs

1. What triggered the liquidation of Three Arrows Capital?

The liquidation of Three Arrows Capital (3AC) was primarily due to high-leveraged financial strategies which led the firm into a staggering debt of $3.3 billion. This, coupled with an order of prohibition from the Monetary Authority of Singapore, forced 3AC to file for bankruptcy. 

2. What is the estimated recovery rate for the creditors of 3AC?

Liquidators have estimated a recovery rate of 45.74% for creditors. This percentage refers to the proportion of their investments that creditors may be able to reclaim from 3AC's liquidation process.

3. How have the assets of 3AC been valued?

As of December 18, the assets of the bankrupt 3AC estate were valued at approximately $1.16 billion. This was predominantly made up of illiquid tokens valued at $563 million, due for vesting by 2026, with about $200 million to be unlocked by the end of 2024.

4. What were the legal actions taken against the co-founders of 3AC?

The British Virgin Islands court froze up to $1.1 billion assets of co-founders Su Zhu, Kyle Davies, and Davies’ wife Kelly Chen. Zhu was arrested in September and sentenced to house arrest until his release on December 20.

5. What does the downfall of Three Arrows Capital mean for the cryptocurrency market?

The collapse of Three Arrows Capital serves as a cautionary tale for investors and firms in the crypto space. It highlights the inherent volatility of the cryptocurrency market and underscores the risks that come with high-leverage financial strategies. It also emphasizes the need for prudent financial practices and strict adherence to regulatory compliance to avoid similar consequences.

This article has been refined and enhanced by ChatGPT.

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