BlockFi CEO Zac Prince Admits Liquidating 3AC

BlockFi CEO Zac Prince disclosed Thursday that his company had liquidated an outstanding loan held by Three Arrows Capital (3AC).

Prince’s statement, made in a series of messages on Twitter, came after customers began racing this week to withdraw their funds amid rumors that the company’s financial stability was waning. The Singapore-based 3AC is facing insolvency as a result of an options trade betting that bitcoin’s price would rise. Instead, its price fell the last ten days by more than 30 percent.

“I’ve been seeing a lot of speculation about BlockFi’s risk management practices that I want to address,” Prince noted in his announcement. “While our policy is to not comment on specific counter-parties, we are committed to providing as much transparency as possible, and it’s important to know the following: BlockFi’s risk management practices and systems allow us to act decisively to mitigate risk in accordance with our contracts. These actions may include margin calls and asset liquidation when appropriate.

“BlockFi can confirm that we exercised our best business judgment recently with a large client that failed to meet its obligations on an over-collateralized margin loan,” he added. “We fully accelerated the loan and fully liquidated or hedged all the associated collateral. No client funds are impacted. We believe we were one of the first to take action with this counter-party.”

The New York-based crypto exchange is best known for its high-interest returns on crypto savings accounts, which run as high as 7 percent APR, as well as its low-interest loans, with advertised rates of as little as 4.5 percent APR. Customers have become increasingly wary of BlockFi after its top competitor, the London-based Celsius Network, froze customer accounts on Sunday amid rumors that it had become insolvent.

I know I already tweeted this. But get your funds off BlockFi. last I’ll say on it

Gl https://t.co/wTQJ9I1B8y pic.twitter.com/YZ9axsmBhH

— Pentoshi Powell Jr 🔺🐧 (@Pentosh1) June 16, 2022

That incident preceded 3AC CEO Zhu Su’s acknowledgement this week that his own company faced insolvency due to numerous failed trades. The firm was one of BlockFi’s borrowers, amplifying fears that the meltdowns could cause BlockFi to destabilize.

The company was under scrutiny even prior to the developments with 3AC. As of early June, it was reportedly in the process of closing a down-round of fundraising, asking investors for cash at a $3 billion valuation — down from $10 billion in March 2021. The move is generally perceived as an indicator of financial desperation.

Pentoshi, a high-profile Twitter user who correctly predicted Celsius’ collapse weeks in advance, warned BlockFi customers on Friday to remove their funds from the exchange, writing, “Personally don’t have any funds on Celsius. Quite often where there is smoke, there is fire. After seeing some of these events unfold w/ them recently among others If I had funds there, I would be taking them off to self custody. Just me 2c, but do as you please. Not worth risk.”

Prince closed his announcement about 3AC by seeking to downplay customer concerns. “As we always have, BlockFi will pass on as much yield from our lending activities to our retail clients as possible,” he wrote. “We will share our new rates in the coming weeks, which will go into effect on July 1st. … I couldn’t be more proud of how our people, processes, and systems have performed through this period of market volatility. BlockFi is here for our clients, and we’re here for the long haul.”