Major crypto venture capital fund Three Arrows Capital Ltd. is facing possible insolvency after suffering almost $400 million in liquidations from lenders, according to a report today from The Block.

Speculation about the firm’s potential insolvency has been swirling on social media after the collapse of the Terra ecosystem in May. The firm had co-led a $1 billion raise to form a bitcoin reserve to protect the stablecoin, which was depleted during the crash.

Three Arrows has faced further questions about its solvency after the crypto lending firm Celsius Network paused withdrawals and transfers on Monday. This event locked up the funds of numerous investors and caused crypto markets to fall by nearly 20% in a 24-hour period. Bitcoin has tumbled to $21,200, a lower market value than it has seen since late 2021.

Other tokens that Three Arrows lists as investments include Ethereum, Solana and Luna. Their prices have fallen by 76%, 89% and 99% from lifetime highs, respectively, according to CoinMarketCap.

Clem Chambers, chief executive of Online Blockchain plc, told SiliconANGLE in an interview that this current “crypto crash” is part of the tail end of what happens to crypto markets in a four-year cycle. He particularly called out Terra and Celsius as gamblers who got caught with their pants down as the market falls.

“Most has already happened, this is near the end of the asset crash across all the different assets. Bitcoin at $13,000 or $15,000 is a solid base,” Chambers said. “It’s a four-year cycle in crypto, and it’s done this several times, this is a permutation of that cycle. Up like a rocket, down like a rock.”

As for recent events appearing to drive crypto markets even lower, such as Terra Luna and Celsius, he explained: “There’s this old joke in equity that you find out who’s swimming naked when the tide goes out. The gamblers look like geniuses on the way up, but they get smashed to pieces on the way down.”

Su Zhu, co-founder and chief executive of Three Arrows Capital, took to Twitter late Tuesday evening to address reports of the firm’s insolvency in a short tweet.

“We are in the process of communicating with relevant parties and fully committed to working this out,” Zhu said.

Three Arrows has been extremely active amid the decentralized finance, equity and nonfungible tokens. It most recently joined a $20 million funding round for Orderly, a DeFi exchange built on the NEAR protocol. The firm also led a $150 million raise in January for the NEAR Foundation, which develops a scalable blockchain protocol for creating decentralized applications.

Some estimates show that the firm managed $10 billion in crypto funds during the market peak.

The liquidation of Three Arrows has also implicated stablecoin issuer Tether, which has been hit with rumors that its reserves may be backed by “Chinese or Asian commercial papers” and that it had taken money from Three Arrows. Rumors that Tether denied in a statement.

“Tether is aware of other rumors being spread, suggesting that it has lending exposure to Three Arrows Capital — again this is categorically false,” the issuer wrote.

Stablecoins operate by maintaining a one-to-one parity with another currency, such as the U.S. dollar so that a token stays at exactly $1. And in the case of Tether, the issuer maintains a monetary reserve as collateral. In the case of Tether, the company claims that 47% of its total is in U.S. Treasuries and that less than 25% is commercial paper.

Tether also stated that it has “zero exposure to Celsius” except for a small investment that the company had made out of its own equity.

Photo: Pixabay