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

article-image

Blockworks exclusive art by Axel Rangel

share

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.


Don’t miss the next big story – join our free daily newsletter.

Tags

Upcoming Events

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

ao cover.jpg

Research

Arweave recently launched the testnet for AO computer, a new messaging protocol that will sit atop a PoS network and aims to become a scalable global compute platform through parallel processing and modularity.

article-image

The “fastest-growing ETF in history” has seen net inflows on every trading day since its Jan. 11 launch

article-image

Relm and Chainproof will provide insurance quotes to distributed validators

article-image

DLC.Link uses a Taproot-based Bitcoin multisig to let institutions mint dlcBTC, starting on Arbitrum

article-image

Pre-seed Bitcoin startup deals rose 360% in 2023, a TVP report shows

article-image

Circle’s new smart contract to allow holders of BlackRock USD Institutional Digital Liquidity Fund to redeem shares for its stablecoin

article-image

Uniswap says it was not surprised to receive a Wells notice given the SEC’s “abusive” use of power as of late