Digital Asset Market Note: The Blow-Up Of 3AC

The liquidation of Three Arrows Capital (3AC), alongside the increasingly apparent exposures of its lending counterparties, have thrown a spotlight on the relatively new crypto lending industry.Voyager Digital has revealed in public filings that 3AC was unable to meet payments on a loan of 15,250 BTC, worth about $305 million, and $350 million of USD Coin.In the coming months, expect digital asset prices to remain subdued.By Benjamin DeanA process of deleveraging is underway in the digital asset industry. The events of recent months serve as a useful demonstration of how digital assets (or “crypto”) are merging with traditional finance—for better or for worse. The liquidation of Three Arrows Capital (3AC),1 alongside the increasingly apparent exposures of its lending counterparties, have thrown a spotlight on the relatively new crypto lending industry.At the same time, these events have demonstrated the strengths of decentralized finance (DeFi) applications, which are still running smoothly, and provide transparency and auditability as all transactions on 'defi' platforms are conducted via open source software code and stored on distributed databases that can be checked 24/7.DeFi vs. CeFiTo start with, it is important to establish what DeFi is. The following is a succinct definition: “Decentralized finance (DeFi) offers financial instruments without relying on financial intermediaries as brokerages, exchanges or banks by using...