Crypto
From $10 billion to zero: How a crypto hedge fund collapsed and dragged many investors down with it
As lately as March, Three Arrows Capital managed about $10 billion in belongings, making it one of the distinguished crypto hedge funds on this planet.
Now the agency, also called 3AC, is headed to chapter courtroom after the plunge in cryptocurrency costs and a very dangerous buying and selling technique mixed to wipe out its belongings and depart it unable to repay lenders.
The chain of ache could be starting. 3AC had a prolonged checklist of counterparties, or firms that had their cash wrapped up within the agency’s potential to no less than keep afloat. With the crypto market down by greater than $1 trillion since April, led by the slide in bitcoin and ethereum, traders with concentrated bets on companies like 3AC are struggling the results.
Crypto trade Blockchain.com reportedly faces a $270 million hit on loans to 3AC. In the meantime, digital asset brokerage Voyager Digital filed for Chapter 11 chapter safety after 3AC could not pay again the roughly $670 million it had borrowed from the corporate. U.S.-based crypto lenders Genesis and BlockFi, crypto derivatives platform BitMEX and crypto trade FTX are additionally being hit with losses.
“Credit score is being destroyed and withdrawn, underwriting requirements are being tightened, solvency is being examined, so everyone seems to be withdrawing liquidity from crypto lenders,” stated Nic Carter, a accomplice at Citadel Island Ventures, which focuses on blockchain investments.
Three Arrows’ technique concerned borrowing cash from throughout the trade after which turning round and investing that capital in different, usually nascent, crypto tasks. The agency had been round for a decade, which helped give founders Zhu Su and Kyle Davies a measure of credibility in an trade populated by newbies. Zhu additionally co-hosted a well-liked podcast on crypto.
“3AC was purported to be the grownup within the room,” stated Nik Bhatia, a professor of finance and enterprise economics on the College of Southern California.
Courtroom paperwork reviewed by CNBC present that legal professionals representing 3AC’s collectors declare that Zhu and Davies haven’t but begun to cooperate with them “in any significant method.” The submitting additionally alleges that the liquidation course of hasn’t began, which means there isn’t any money to pay again the corporate’s lenders.
Zhu and Davies did not instantly reply to requests for remark.
Tracing the falling dominoes
The autumn of Three Arrows Capital may be traced to the collapse in Might of terraUSD (UST), which had been one of the common U.S. dollar-pegged stablecoin tasks.
The soundness of UST relied on a posh set of code, with little or no onerous money to again up the association, regardless of the promise that it might preserve its worth whatever the volatility within the broader crypto market. Traders had been incentivized — on an accompanying lending platform referred to as Anchor — with 20% annual yield on their UST holdings, a rate many analysts said was unsustainable.
“The risk asset correction coupled with less liquidity have exposed projects that promised high unsustainable APRs, resulting in their collapse, such as UST,” said Alkesh Shah, global crypto and digital asset strategist at Bank of America.
Panic selling associated with the fall of UST, and its sister token luna, cost investors $60 billion.
“The terraUSD and luna collapse is ground zero,” said USC’s Bhatia, who published a book last year on digital currencies titled “Layered Money.” He described the meltdown as the first domino to fall in a “long, nightmarish chain of leverage and fraud.”
3AC told the Wall Street Journal it had invested $200 million in luna. Other industry reports said the fund’s exposure was around $560 million. Whatever the loss, that investment was rendered virtually worthless when the stablecoin project failed.
UST’s implosion rocked confidence in the sector and accelerated the slide in cryptocurrencies already underway as part of a broader pullback from risk.
3AC’s lenders asked for some of their cash back in a flood of margin calls, but the money wasn’t there. Many of the firm’s counterparties were, in turn, unable to meet demands from their investors, including retail holders who had been promised annual returns of 20%.
“Not only were they not hedging anything, but they also evaporated billions in creditors’ funds,” said Bhatia.
Peter Smith, the CEO of Blockchain.com said last week, in a letter to shareholders viewed by CoinDesk, that his company’s exchange “remains liquid, solvent and our customers will not be impacted.” But investors have heard that kind of sentiment before — Voyager said the same thing days before it filed for bankruptcy.
Bhatia said the cascade hits any player in the market with significant exposure to a deteriorating asset and liquidity crunch. And crypto comes with so few consumer protections that retail investors have no idea what, if anything, they’ll end up owning.
Customers of Voyager Digital recently received an email indicating that it would be a while before they could access the crypto held in their accounts. CEO Stephen Ehrlich said on Twitter that after the corporate goes by way of chapter proceedings, clients with crypto of their account would doubtlessly obtain a kind of seize bag of stuff.
That might embrace a mix of the crypto they held, frequent shares within the reorganized Voyager, Voyager tokens and no matter proceeds they’re in a position to get from 3AC. Voyager traders instructed CNBC they do not see a lot motive for optimism.
WATCH: Voyager Digital recordsdata for chapter amid crypto lender solvency disaster
Crypto
Japan, US blame North Koreans for $300 million crypto theft
Tokyo, Japan — A North Korean hacking group stole cryptocurrency worth over $300 million from the Japan-based exchange DMM Bitcoin, according to Japanese police and the United States’ FBI.
The TraderTraitor group — believed to be part of Lazarus Group, which is allegedly linked to the Pyongyang authorities — carried out the heist, Japan’s National Police Agency said Tuesday.
Lazarus Group gained notoriety a decade ago when it was accused of hacking into Sony Pictures as revenge for “The Interview,” a film that mocked North Korean leader Kim Jong Un.
READ: Philippines ranks 2nd in cryptocurrency ownership globally — study
The FBI detailed “the theft of cryptocurrency worth $308 million US dollars from the Japan-based cryptocurrency company DMM by North Korean cyber actors” in a separate statement dated Monday.
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It described a “targeted social engineering” operation where a hacker pretended to be a recruiter on LinkedIn to contact an employee of a different crypto wallet software company.
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They sent the employee what appeared to be a pre-employment test, which actually contained a malicious line of code.
That allowed the hacker to compromise their system and impersonate the employee, the FBI said.
“In late May 2024, the actors likely used this access to manipulate a legitimate transaction request by a DMM employee, resulting in the loss of 4,502.9 Bitcoin, worth $308 million at the time,” it said.
“The FBI, National Police Agency of Japan, and other US government and international partners will continue to expose and combat North Korea’s use of illicit activities — including cybercrime and cryptocurrency theft — to generate revenue for the regime,” it said.
North Korea’s cyber-warfare program dates back to at least the mid-1990s.
It has since grown to a 6,000-strong cyber-warfare unit known as Bureau 121 that operates from several countries, according to a 2020 US military report.
Crypto
North Korean hacker group identified in theft of DMM Bitcoin assets
A North Korea-linked hacker group stole digital assets worth 48.2 billion yen ($307 million) from Tokyo-based cryptocurrency exchange DMM Bitcoin Co. in May, Japanese police said Tuesday.
The hacker group was identified by the police as TraderTraitor following an investigation conducted in collaboration with the U.S. Department of Defense and the Federal Bureau of Investigation.
DMM Bitcoin said earlier this month it will go out of business after suspending some of its services following the detection of the unauthorized leakage of funds on May 31.
Photo illustration shows a visual representation of the digital cryptocurrency Bitcoin. (Getty/Kyodo)
The police tracked the flow of stolen bitcoin to an account managed by the group, which is suspected to be linked to the Lazarus hacking group allegedly sponsored by the North Korean government.
The investigation found that an employee at a company that manages DMM Bitcoin’s cryptocurrency accounts was contacted via the LinkedIn social network by a person purporting to be a headhunter.
The perpetrator then breached the wallet management system by planting malware and falsified transaction amounts as well as the destinations of remittances, the police said.
In September, Japan’s Financial Services Agency ordered the exchange to improve operations, saying its risk management structure was inadequate.
No customers suffered financial damage as the exchange secured 55 billion yen from a group firm to cover the lost assets.
The police, the FBI, and other U.S. government and international partners will “continue to expose and combat North Korea’s use of illicit activities,” including cybercrime and cryptocurrency theft, to generate revenue for the regime, they said in a statement.
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Japanese publisher paid $3 million to hacker group after cyberattack
Japan’s DMM Bitcoin to end business after losing 48 bil. yen in leak
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Crypto
Experts reveal game-changing ways cryptocurrency can boost local economies — do the perks outweigh the cost?
As more people become aware of the negative environmental impacts of advancements in technology, certain industries and businesses are looking to pivot and remake their images in the name of the green transition.
In the cryptocurrency world, Ethereum in 2022 changed its modus operandi from proof of work to proof of stake — and reduced its energy consumption in doing so by nearly 100%. This switch was projected to reduce the company’s pollution from 11 million tons of carbon each year to 870 tons, and it doubled its value to $600 billion.
Bitcoin adherents are touting its ability to contribute to a cleaner future, too. Daniel Batten, an analyst and climate investor, has said that mining operations can help renewable energy farms become immediately profitable and drive continued investment in that industry.
Bitcoin, though, still generates an estimated 95 million tons of carbon dioxide equivalent annually, per the University of Cambridge’s Bitcoin Electricity Consumption Index. That’s a figure some insiders, such as Batten, say is out of step with the latest percentages of renewable energy, which a Bloomberg analyst has put at over 50%, and indeed the Cambridge index says “the estimates currently displayed on our website are grounded on electricity mix data available as of January 2022.” A lot has changed in the nearly three years since, with many professional mining operations going off the grid with renewable energy to improve their long-term return on investment.
These blockchain-based marketplaces provide examples of where the technology has been, how it has changed, and where it’s going. Other breakthroughs could help crypto contribute to sustainability, as CCN reported.
“Skeptics question whether the environmental benefits of blockchain outweigh its energy costs,” Lorena Nessi wrote. “Some argue that while blockchain offers tools for climate solutions, the emissions from mining and other processes may offset these gains.”
The reason many people are so high on the technology is because it offers an efficient, decentralized alternative to traditional methods.
Take, for example, how blockchain has transformed a couple of cities as they relate to the energy industry, as CCN relayed. In New York and Western Australia, homeowners can generate, buy, sell, and trade solar energy. Blockchain technology allows for transparent transactions, enabling the creation of a free market, encouraging the use of renewable energy, and ensuring energy independence while supporting the local economy.
Other developments facilitated by blockchain include the granting of tokens for sustainable behaviors, such as recycling or reducing energy use. The “tamper-proof system” also means ledgers can be created to monitor the environment and verify climate data as well as manage carbon credits, which could revolutionize the questionable nature of such programs.
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But CCN noted that integrating artificial intelligence — another energy-sapping technology — and overly relying on such tools, which lack regulation, are great risks.
The wealthy companies that use blockchain, AI, and other inventions that stress the electrical grid have the power to make this change a reality. Otherwise, it will remain up to the public to try to hold them and their executives accountable.
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