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A ‘crypto credit crisis’: What to know about FTX, 3AC, BlockFi, and a founder’s mansion up for sale

July 1, 2022, 3:58 PM UTC
Bitcoin, crypto down after rough quarter
Chesnot—Getty Images

The second quarter of 2022 might go down as one of the worst in crypto’s history.

In May, the collapse of the Terra ecosystem set off a domino effect felt harshly across an industry that had already been buffeted by inflation and other macroeconomic forces. Soon, forced selling and liquidity issues began to take a toll on both whales and everyday investors. 

By early June, Celsius Network, one of the largest crypto lenders, paused its withdrawals and soon faced rumors of bankruptcy. Afterward came reports concerning the crypto hedge fund Three Arrows Capital (3AC), fueling fears of contagion and systemic risk

Overall, the crypto space is facing its “first large-scale credit crisis,” Lucas Outumuro, head of research at IntoTheBlock, wrote Friday in his newsletter. 

“Institutions led by their risky practices thrived during the bull market, but were exposed as prices crashed and took down the rest of the crypto space with them. Ultimately, as an industry, crypto ended up learning the same lessons from traditional finance from its first debt crisis.”

Each day since has felt like a whirlwind news cycle. Here’s the latest on what to know.

Blockchain.com, Deribit reportedly pushed for 3AC liquidation

Crypto exchange Blockchain.com and the derivatives shop Deribit are among the 3AC creditors seeking its liquidation at a court in the British Virgin Islands, Bloomberg reported Thursday evening. Blockchain.com also disclosed it’s cooperating with investigations into 3AC.

“We believe Three Arrows Capital defrauded the crypto industry and intend to hold them accountable to the fullest extent of the law,” Blockchain.com told Bloomberg. “We have filed for the immediate liquidation of all global assets of Three Arrows.” 

Additionally, 3AC was reprimanded by the Monetary Authority of Singapore, which said 3AC provided it with false information and exceeded the assets under management threshold allowed. 

3AC cofounder tries to sell his $35 million Singapore mansion

Su Zhu, cofounder of 3AC, is trying to sell his Singapore mansion.

He and his wife bought the 31,000-square-foot property in December for about $35 million, according to the Singapore Land Authority. In March, it appears Zhu moved the property title to a trust for their child.

Zhu might be looking to sell his upscale home now that his hedge fund is facing extreme hardship and inability to repay its debts. 

Ledn offers BlockFi funding after reported acquisition offer from FTX

Crypto lending platform Ledn is offering funds to BlockFi, Bloomberg reported late Thursday, providing the crypto deposit service—which until recently had been a venture capital darling—a potential lifeline.

Ledn would lead a funding round of “up to $400 million and provide a $50 million equity contribution that would give Ledn a significant portion of the company,” Bloomberg said.

This comes after reports from CNBC alleging that massive crypto exchange FTX is seeking to acquire BlockFi, which had been valued at around $5 billion just last year, for about $25 million—which BlockFi CEO Zac Prince has adamantly denied

Finblox raised its withdrawal cap and is seeking legal counsel against 3AC

Finblox, a cryptocurrency staking platform, raised its daily withdrawal cap to $3,000, with an additional increase to $50,000 planned next week for “verified users,” CoinDesk reported on Friday. 

This comes after Finblox limited withdrawals to $1,500 in June, citing exposure to 3AC.

Finblox is seeking legal counsel to recover funds lent to 3AC after sending “multiple demands” for repayment. 

Babel Finance is reportedly hiring a restructuring specialist

Crypto lender Babel Finance is reportedly hiring Houlihan Lokey, an investment banking firm specializing in restructuring and distressed mergers and acquisitions, CoinDesk said on Friday.

This comes after Babel paused withdrawals in June. Though Babel recently said it reached “preliminary agreements with counterparties on the repayment of some debts,” adding that this “eased the company’s short-term liquidity pressure,” the platform is still “looking at restructuring,” CoinDesk reported.

“They’ve hired Houlihan Lokey or are in the process of hiring them. They’re in the process of signing an engagement letter,” a source told CoinDesk.

Nonetheless, the recent troubles of 3AC, BlockFi, and others underscore just what a precarious situation the industry finds itself in. It’s unclear if the various legal and financial responses underway will serve to ease its troubles—or if more bad news is on the way.