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Three Arrows Ghosts Kyber Network As Threats of Legal Action Fly

Latest Web3 Team to Reveal its Exposure to Ailing Hedge Fund

Three Arrows Ghosts Kyber Network As Threats of Legal Action Fly

Kyber Network has become the latest web3 team to reveal that the struggling hedge fund Three Arrows Capital (3AC) was managing a portion of its treasury.

On June 23, Kyber tweeted that “a small portion” of its treasury was being managed by Three Arrows. It said the two firms had built a relationship over three years, stating the drama surrounding Three Arrows caught it off guard.

Lost Trust

Kyber is a decentralized liquidity aggregator that powers token swaps for third party dApps, wallets, and protocols. The project has a market cap of 145.8M, ranking 196th among crypto projects, according to CoinGecko.

Loi Luu, Kyber’s co-founder, said attempts to communicate with Three Arrows have not been reciprocated.

“Our exposure with them is a small portion of our treasury but they lost all of our trust & relationship with them, which was built up over three or four years,” Luu tweeted. “We are taking legal action.”

Brink of Failure

Dogetoshi, the director of research at The Block, used data from Nansen to estimate that roughly $7.9M of Kyber’s treasury had been entrusted to Three Arrows, including 2.47M USDC, 2.75M USDT, and 1,331 ETH.

The confrontation between Kyber and Three Arrows strikes just two days after Voyager Digital, a U.S.-based crypto broker, demanded the fund repay $658M in debt or else it would be placed in default.

Creditor Slaps Three Arrows With Ultimatum to Pay $658M in Debt or Face Default - The Defiant

Creditor Slaps Three Arrows With Ultimatum to Pay $658M in Debt or Face Default - The Defiant

Three Arrows Capital has until June 27 to cough up $658M or it will be pushed into default by a lender that is running out of patience. 

Creditor Slaps Three Arrows With Ultimatum to Pay $658M in Debt or Face Default - The Defiant The Defiant

Three Arrows, which has $10B in assets under management, was the second major crypto firm on the brink of failure amid the recent market downturn. CeFi lender Celsius also suspended customer withdrawals just a few weeks after the collapse of Terra. 

Three Arrows’ struggle to service its debts is having an impact on many web3 firms. Last week, an unnamed project backed by Three Arrows claimed that many of the fund’s portfolio companies trusted the firm with significant portions of their treasuries. 

Leveraged Long Everywhere

Danny Yuan, CEO of 8 Blocks Capital, a trading firm and partner to Three Arrows, said the firm misappropriated $1M of their funds. He said the firm was “leveraged long everywhere and were getting-margin called.” 

Kyber emphasized that its treasury can still sustain development for many years, describing the incident as a lesson and a wake-up call for the team. “Nothing [has] changed in our long-term plan, we are not laying off but rather expanding the Kyber team,” it said.

Sum of Tokens

Kyber also noted that Three Arrows previously purchased its native KNC token in an over-the-counter deal. However, it emphasized that the sum of tokens purchased was not significant and had been transferred from 3AC’s receiving wallet a long time ago, meaning a potential Three Arrows insolvency should not impact the price of KNC.

“We do not believe that 3AC still holds the KNC purchased from Kyber treasury… such KNC should not be part of 3AC’s asset liquidation.”

Kyber’s native KNC token has jumped 5.9% in the last seven days compared to a 7.7% increase in Ether, according to CoinGecko.