BlockFi Says It Liquidated a ‘Large Client’ Amid 3AC’s Margin Calls

The lender made the move to mitigate risks following fears of market contagion amid Three Arrows’ troubles


Blockworks exclusive art by Axel Rangel


key takeaways

  • BlockFi said it was exercising “best business judgement” when it joined in other lenders to liquidate a “large client”
  • Reports point to Three Arrows Capital as the unnamed client and follows the hedge fund firm’s rumoured $400 million liquidation

Crypto lender BlockFi confirmed Thursday it has liquidated a “large client” and acted “decisively” to mitigate risks in accordance with its contracts with specific counterparties.

While the lender has not explicitly named the client, it comes amid reports claiming crypto hedge fund and venture capital firm Three Arrows Capital (3AC) was the counterparty involved, according to the Financial Times.

“BlockFi can confirm that we exercised our best business judgment recently with a large client that failed to meet its obligations on an overcollateralized margin loan,” BlockFi CEO Zac Prince tweeted late Thursday. “We fully accelerated the loan and fully liquidated or hedged all the associated collateral.”

A shaken market continues to cause headaches for some of the industry’s household names including interest yield-earning platform Celsius, which moved to restrict user withdrawals and transfers, citing extreme market conditions. A liquidity crisis is staring down some crypto firms that are struggling to meet their obligations to lenders.

“Some investors have lost confidence and trust in crypto in general. People who are involved in [decentralized finance] fear more similar bank-run events, thus continuing to sell off and reduce leverage,” Youwei Yang, director of financial analytics at financial services firm StoneX, told Blockworks in an email. “Ripple effects or lingering causes resulting from Terra’s crash also continue.”

Client funds remain unaffected as BlockFi was one of the first to take action with the unnamed counterparty, Prince added in a follow-up tweet. Blockworks attempted to contact BlockFi but did not receive a response by press time.

Embattled firm 3AC is rumored to be facing insolvency following a $400 million liquidation by top-tier lenders. 3AC is said to have maintained limited contact with involved counterparties. Blockworks attempted to contact 3AC but also received no response.

The firm is reported to have been underwater from its involvement in the now-defunct Terra ecosystem and illiquid investment in staked ether (stETH) via the Lido Finance protocol, with some speculating 3AC dumped large amounts of stETH at a discount to finance its debts. While fully backed by ether in the Beacon Chain, stETH is not redeemable for ether on a 1:1 basis until withdrawals are enabled after blockchains’ Merge. StETH is trading for around 0.93 ETH as of Friday at 5 am ET.

As the Dubai-based firm failed to meet obligations on its margin calls from borrowed collateral, 3AC attempted to cover its debts by selling other assets at a loss, leading to hundreds of millions in liquidations, The Block reported Wednesday.

Crypto yield generator Finblox became the latest firm entangled in 3AC’s troubles, imposing a $1,500 monthly withdrawal limit and pausing reward distribution on Thursday as a result of contagion risk.

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