Is Three Arrow Capital dumping its NFT fund to pay back crypto loan sharks?

NEW DELHI (CoinChapter.com) — Embattled venture capital firm Three Arrows Capital (3AC) might be looking to sell its NFT stash to solve its insolvency problems, according to a Twitter post from a Coinmetrics analyst, Kyle Waters.

Waters noted that an affiliate fund of Three Arrows, Starry Night Capital, moved much of its multimillion-dollar NFT collection into a single wallet. The move has prompted speculation of a likely fire sale.

1/ Over the last 24h Three Arrows Capital-backed NFT fund @StarryNight_Cap has moved its entire collection on SuperRare totaling 70 works which it has spent >$21M on since last August. pic.twitter.com/rNZVJ0li8I

— Kyle Waters (@kylewaters_) June 15, 2022

Three Arrows Capital launched the Starry Night Capital after partnering with pseudonymous NFT collector Vincent Van Dough. The firm aimed to raise $100 million and collect “the top pieces from the most desired sets.”

The Starry Night collection included pieces from the Fidenza and Ringers series from the Art Blocks collection, worth thousands of dollars a piece. Moreover, the collection also included other famous works, like the “Lost Robbie,” which sold for nearly $1 million last year.

Related: Crypto fund Three Arrows Capital (3AC) could die amid liquidation woes.

In addition, the collection also included pieces from other NFT collections, including but not limited to Art Blocks, KnownOrigin, and Foundation. Meanwhile, Waters noted that estimated the firm had spent $21 million to amass its collection.

However, the amount was tiny compared to the billions in assets that 3AC likely managed.

The link between Three Arrows and Starry Night is unclear. For example, the two firms might have different liquidity providers or investors. As a result, it might be difficult for 3AC to sell Starry Night NFTs to pay back Three Arrow investors.

Additionally, the sale of the collection would likely see Starry Nights incur heavy losses. The project acquired most of its pieces last year during the crypto bull run.

Three Arrows Capital Fails Lender Margin Calls

The VC firm failed to meet lenders’ margin calls after its digital currency bets turned sour, making it the latest victim of the ongoing crypto bear market. US-based crypto lender BlockFi was among the firms that liquidated some of 3AC’s positions.

Three Arrows had borrowed Bitcoin (BTC) from BlockFi and failed to meet the margin call, resulting in the lender reducing its exposure to 3AC by taking the VC firm’s collateral. A person familiar with the transaction told Forbes the liquidation had occurred by mutual consent.

We exercised our best business judgment recently with a large client that failed to meet its obligations . . . We believe we were one of the first to take action with this counterparty.

Yuri Mushkin, BlockFi’s chief risk officer, said.

Furthermore, the fallout of Three Arrows problems engulfed other projects too. For example, Finblox, a lending platform that received an investment from 3AC, reduced its withdrawal limits on Jun 16. The firm cited Three Arrows’ ongoing situation as the reason behind the move.

IMPORTANT UPDATE FROM FINBLOX! pic.twitter.com/VjclRMMiSe

— Finblox (@finblox) June 16, 2022

Also Read: What happened with Three Arrow Capital (3AC), according to crypto fund’s market maker.

Moreover, the VC firm had holdings in several cryptos that have spiraled in recent months, including Avalanche (AVAX) and Solana (SOL).

Interestingly, the current market scenario is far from the “crypto supercycle” view that 3AC founder Su Zhu earlier supported. In detail, Zhu believed that mainstream adoption of cryptos would result in a continual price rise without cryptos falling into a near-term bear market.

Mr. Zhu might be re-thinking the above statement now, considering the uncertainty surrounding Three Arrows future.