- Kyle Davies and Su Zhu, the fund’s creators, recently acknowledged they incurred losses of over $200 million in connection with LUNA.
- Zhu believes that what they didn’t understand was that luna was capable of going to effectively zero in a matter of days.
- In recent months, GBTC’s value decreased despite a general market slump.
Su Zhu’s Statement Regarding Three Arrows Capital
According to its founders, trades involving the Grayscale Bitcoin Trust (GBTC), Terra’s luna (LUNA), and terraUSD (UST) tokens ultimately caused the troubled cryptocurrency firm Three Arrows Capital to collapse.
Kyle Davies and Su Zhu, the fund’s creators, recently acknowledged they incurred losses of over $200 million in connection with LUNA and the now-implemented algorithmic stablecoin UST. Around May, the two tokens’ prices began to decline rapidly, eventually reaching almost $0.
Zhu believes that what they didn’t understand was that luna was capable of going to effectively zero in a matter of days and that this would precipitate a credit crisis across the sector, putting substantial pressure on all of their illiquid assets. He continued by saying that Three Arrows Capital, or 3AC as it is most often known, had overlooked Terra-related concerns. In the middle of May, the ecosystem algorithmic stablecoin terraUSD (UST) lost its intended peg with the U.S. dollar and virtually all of its value over a week.
The Frozen GBTC Shares
One of the most outspoken supporters of Terra, 3AC was also one of the biggest investors in GBTC, an institutional bitcoin product. The Digital Currency Group’s separate businesses are Grayscale and CoinDesk (DCG). Because GBTC was a regulated commodity, it permitted buyers like 3AC to pay directly for shares by sending bitcoin to the trust. Holders could then sell the shares on over-the-counter markets at a premium, which resulted in a substantial profit for the sellers and made the deal appealing to investors.
Since GBTC shares were frozen for six months, holders of those shares suffered losses rather than gains when prices fell. Over the last year, GBTC’s premium was charged at a discount, reaching a record discount in June. This resulted in significant losses for investors like 3AC, who heaped on exposure to the product valued at billions of dollars. Leverage was used to boost returns, but the result was torn. In recent months, GBTC’s value decreased despite a general market slump. Before falling more than 50% to $12 earlier this week, GBTC shares had traded at over $34 at the start of the year.
Source: https://www.thecoinrepublic.com/2022/07/25/are-terra-gbtc-trades-the-reason-for-fund-blowout/