Comment by Barrera | Hacker News Reader

Comment by Barrera | Hacker News Reader

> Prominent crypto hedge fund Three Arrows Capital has defaulted on a loan worth more than $670 million. Digital asset brokerage Voyager Digital issued a notice on Monday morning, stating that the fund failed to repay a loan of $350 million in the U.S. dollar-pegged stablecoin, USDC, and 15,250 bitcoin, worth about $323 million at today’s prices.

In other words, the $670 million that 3AC defaulted on was ~50:50 USDC and bitcoin.

Then later:

> Zhu [3AC founder] is known for his incredibly bullish view of bitcoin. He said last year the world’s largest cryptocurrency could be worth $2.5 million per coin. But in May this year, as the crypto market began its meltdown, Zhu said on Twitter that his “supercycle price thesis was regrettably wrong.”

This seems odd. How does a person convinced that bitcoin exchange is headed to $2.5 million take out a loan of 15K bitcoin if he actually thinks he'll be paying back it back at a higher exchange rate? Either the founder was bullish in principle but bearish in practice, or didn't have the first clue about what he was doing.

> How does a person convinced that bitcoin exchange is headed to $2.5 million take out a loan of 15K bitcoin if he actually thinks he'll be paying back it back at a higher exchange rate?

Part of being in crypto involves suspending disbelief, even your own.

There's also the famous saying "It is difficult to get a man to understand something when his salary depends on his not understanding it". In this case, you don't build a following in crypto by being bearish, ever. It's all about kumbayah and spreading positive vibes in the "community"

It's possible if you are bullish on bitcoin to borrow bitcoin, deposit at a futures exchange such as bitmex or I think FTX and then take a long position on bitcoin of up to 100x the amount staked. !00x is generally unwise but if you are bullish bitcoin you might borrow a bitcoin and then go 3x long on the futures making your net position 2x long. It could even make you a lot of money if you got the timing right.

The real puzzle to me is why anyone would want to make an unsecured loan to such speculators. From 3AC's point of view it may have been a smart bet - heads we are billionaires, tails our counterparties lose.

Update - I came across something on why they would have made such a loan

Voyager was offering the public high interest rates eg. 9% on USDT and 6% on bitcoin and then had to find somewhere to put that money that promised to pay more than that interest so they could make a profit. (rates https://www.investvoyager.com/blog/voyagers-june-interest-ap...)

>3AC said they would pay a high rate of interest, and Voyager took their word for it– because in the minds of Voyager’s principals, there was no other outfit with 3AC’s pedigree that could absorb the amount of capital that needed to be shipped out the door. https://entrepreneurshandbook.co/number-three-511f334d8fae

So basically they lent the money because it was other people's money and they could make a profit as an intermediary.

One reason for taking a 50:50 position in DeFi would be for AMM liquidity pools, which make "money" on the AMM fee and also open the door for arbitrage opportunities on the spread, as well.

If you're bullish on BTC, you might want to become a provider for a USD(C)->BTC LP. Assuming the price of BTC goes up, you will naturally end up with more USDC as a result.

I think you would have to know more about how the deal was structured before making these assumptions. You could hedge out directional risk in an asset while borrowing it. I think it's doubtful this position was net short bitcoin.

Or you are right, they were unbelievably naive.

I think option #3 is the most likely one - they didn't actually believe what they were saying.

3AC was active in alt coin trade. They definitely knew what they were doing, they have been trading crypto since 2012. They were probably temporarily shorting it on a rotation trade. They got blown out bad by the Luna debacle and then dragged down with it.

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