The list of collateral victims of the liquidity crisis currently affecting crypto lenders is far from fully known.
If indeed we already have two dominoes that have fallen, it will take time to know the names of the different firms exposed to this debacle which has revived great mistrust of the crypto industry.
It all started with the dramatic collapse of sister tokens Luna and UST in May, which resulted in the disappearance of at least $55 billion. We have since learned that hedge fund Three Arrows Capital, also known as 3AC, has invested large sums of money in Luna.
The episode revealed further interconnections that expose a sector dominated by debt and with very few risk management mechanisms. Indeed, Three Arrows Capital apparently borrowed money from multiple crypto firms using the same Bitcoins as collateral. The lower Bitcoin prices fell, the less the hedge fund could repay its creditors.
So it’s no surprise that 3AC defaulted on a $667 million loan granted to it by Voyager Digital. Other platforms that have lent to 3AC are BlockFi and Babel Finance. Panicked, customers of these firms rushed to withdraw their money, but unfortunately the lenders did not have enough cash on hand to meet these demands. As a result, a large number of crypto lenders suspended withdrawals and other transactions. Among them Celsius Network, CoinLoan, CoinFlex and of course Voyager and Babel Finance.
Coinbase says it has no exposure to Three Arrows Capital
3AC has been placed in compulsory liquidation by a court in the British Virgin Islands. Voyager filed for bankruptcy.
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The crisis initially gave the impression of mainly affecting crypto lenders, but we now learn that other players, and in particular the major cryptocurrency exchanges, are also victims. This is the case of Blockchain.com which has $270 million in exposure to 3AC, according to Coindesk.
CEO Peter Smith revealed this in a letter to shareholders, the news site wrote. Blockchain.com, founded in 2011, expects to lose money loaned to 3AC, Coindesk understands. However, the trading platform believes that this will not affect its liquidity.
“Smith also emphasized that Blockchain.com “remains liquid, solvent, and our customers will not be impacted,” in the letter dated June 24,” Coindesk reported.
Blockchain.com, which this year became a sponsor of the Dallas Cowboys NFL team, did not immediately respond to a request for comment.
After the Blockchain.com disclosure, TheStreet contacted other major cryptocurrency exchanges to ask if they had exposure to 3AC.
“Coinbase does not,” a spokesperson told TheStreet in an emailed statement. Coinbase (PIECE OF MONEY) – Get the Coinbase Global Inc report is the most popular cryptocurrency trading platform in the United States, TheStreet said in an emailed statement.
Binance, the largest crypto exchange by volume, did not respond at the time of this writing.
