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Crypto broker Voyager Digital said on Monday it has issued hedge fund Three Arrows Capital (3AC) with a notice of default.
The firm said in a press release that one of its units had issued 3AC with a default notice for its inability to repay a loan of 15,250 Bitcoin and $350 million in USDC- worth roughly $660 million.
Voyager had earlier this month flagged a potential default by 3AC. It now intends to pursue recovery of the funds through legal action.
Additionally, Voyager said it had also drawn down $75 million of a recent credit line provided to the firm by crypto trading house Alameda Research.
3AC default to see legal action
3AC’s default of the $660 million loan reflects the strained finances of the hedge fund. A sharp drop in the value of Lido staked Ethereum (stETH)- which 3AC had used extensively as collateral- exposed the firm to multiple margin calls, causing it to burn through its finances.
3AC is considering several measures to work through its insolvency, including asset sales and bailout talks. The firm was seen selling off several of its tokens to likely meet margin calls.
Voyager is likely to be the first of many firms in pursuing recovery measures against 3AC. It is unclear as to what extent 3AC’s debt exposure is.
Other crypto lenders, including BlockFi, said they had liquidated their exposure to the firm after it failed to meet the margin call.
3AC was also accused of misappropriating customer funds to meet some of its margin calls, which could attract more legal action.
Insolvency stems from Terra crash, stETH depegging
3AC’s current financial woes likely began with the Terra crash in May. The firm was a key investor in Terra, and had large holdings of LUNA and UST- both of which lost virtually all of their value.
A de-pegging of stETH from Ethereum prices, in the secondary market, also exposed the hedge fund to multiple margin calls, for which it did not have sufficient funding.
Liquidations of 3AC positions saw a large amount of tokens being dumped onto the market, which in turn caused crypto prices to fall further.
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