Genesis Trading Confirms “Large Counterparty” Liquidation Amid 3AC Crisis

The update comes as the celebrated crypto hedge fund Three Arrows Capital faces its biggest liquidity crisis to date. 

Genesis Trading Says It Liquidated Counterparty

Genesis Trading has confirmed that it liquidated “a large counterparty” this week, in what was surely a reference to the ongoing crisis surrounding the crypto-focused hedge fund Three Arrows Capital. 

1/While our policy is to never address specific client activity, we think it’s prudent to provide clarity and transparency to the market in times of great volatility and speculation. We want our counterparties and clients to know the following:

— Michael Moro (@michaelmoro) June 17, 2022

The institutional trading firm’s CEO Michael Moro posted a tweet storm Friday, saying that Genesis prioritizes risk management and aims to provide transparency during heated market conditions. “Genesis can confirm that we carefully and thoughtfully mitigated our losses with a large counterparty who failed to meet a margin call to us earlier this week,” he wrote. “No client funds are impacted. We sold and/or hedged all of the liquid collateral on hand to minimize any downside.” 

Moro added that the firm would always “actively pursue recovery on any potential residual loss through all means available” and continues to fulfil all client requests. “Genesis will be around for the long term and we are committed to driving this industry forward,” he assured. 

Though Moro did not explicitly mention the counterparty affected by the margin call, he was more than likely referring to Three Arrows, the troubled trading firm co-run by Su Zhu and Kyle Davies. Rumors that Three Arrows was facing a liquidity crisis surfaced on Crypto Twitter earlier this week and Zhu has since stated that the firm is “fully committed to working this out” without detailing the scale of the damage. BlockFi and other firms have since confirmed that they liquidated some of the firm’s collateral as they failed to meet margin calls, according to multiple news reports. 

The Wall Street Journal interviewed Zhu and Davies for a report published today in which the pair confirmed that they had hired legal and financial specialists to navigate the crisis. Davies said that the firm was mulling an asset sale or bailout from another big player in the space. 

The Three Arrows saga comes in the midst of a dark period in the crypto market. Major events of the ongoing bear cycle include Terra’s collapse in May, which impacted Three Arrows as it invested $200 million in LUNA. Celsius also paused customer withdrawals this week as Bitcoin and other assets tumbled (the firm uses customers’ funds as collateral, which means it can face liquidity issues when prices plummet). Bitcoin broke below $21,000 this week, bringing the global crypto market cap under $1 trillion for the first time since January 2021. It’s now at $930 million, just under 70% down from its November 2021 peak. 

Disclosure: At the time of writing, the author of this piece owned ETH and several other cryptocurrencies.