Three Arrows-backed Protocol Says Major Chunk of Treasury Is Unaccounted For

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  • A DeFi pro­to­col backed by Three Arrows Cap­i­tal says the fund con­trolled a large por­tion of its treasury
  • The pro­to­col has not received any com­mu­ni­ca­tion from Three Arrows co-founders or the TPS Cap­i­tal Team since liq­ui­da­tion spec­u­la­tion began

A decen­tral­ized finance pro­to­col backed by the now-unrav­el­ing Three Arrows Cap­i­tal has a sig­nif­i­cant por­tion of its trea­sury unac­count­ed for. It has not heard from the Three Arrows team this week, accord­ing to the protocol’s founder, who agreed to speak with Block­works on the con­di­tion of anonymity. 

The pro­to­col closed its $3.5 mil­lion seed fund­ing round, led by Three Arrows, in late 2021. As part of the round, the pro­to­col received sta­ble­coins USD Coin and Teth­er, which the com­pa­ny could have either active­ly man­aged by lend­ing it on a decen­tral­ized mar­ket or opt­ed to keep all or a por­tion of it with TPS Cap­i­tal, Three Arrow’s over-the-counter trad­ing desk. 

Three Arrows guar­an­teed 8% annu­al returns on this trea­sury man­age­ment ser­vice. Because of the high yields, many pro­to­cols backed by Three Arrows decid­ed to keep their fund­ing round cap­i­tal, plus por­tions of their own trea­suries, with Three Arrows, the founder said. 

It felt like the safer option, the protocol’s founder said, com­pared to the alter­na­tive — deploy­ing the cap­i­tal through risky smart con­tracts. The deci­sion was fur­ther val­i­dat­ed when it was unaf­fect­ed by Terra’s col­lapse, but now, a notable chunk of the protocol’s trea­sury is unac­count­ed for. 

Spec­u­la­tion about Three Arrows’ insol­ven­cy began Tues­day fol­low­ing a cryp­tic Tweet from co-founder Su Zhu. The Block lat­er report­ed Three Arrows was scram­bling to find funds to repay lenders and oth­er coun­ter­par­ties after major liquidations.

The pro­to­col has not received any com­mu­ni­ca­tion from Three Arrows co-founders Zhu and Kyle Davies or the TPS Cap­i­tal team since June 10, the founder said. 

The founder said that the pro­to­col is weigh­ing its legal options and has been in con­tact with two oth­er Three-Arrows-backed pro­to­cols that face the same uncer­tain­ty about the state of their treasuries. 

Anoth­er Three Arrows-backed pro­to­col con­firmed with Block­works that the fund asked to man­age its trea­sury, an offer the pro­to­col declined. 

This is a devel­op­ing story.


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  • Casey Wag­n­er

    Block­works

    Senior Reporter

    Casey Wag­n­er is a New York-based busi­ness jour­nal­ist cov­er­ing reg­u­la­tion, leg­is­la­tion, dig­i­tal asset invest­ment firms, mar­ket struc­ture, cen­tral banks and gov­ern­ments, and CBD­Cs. Pri­or to join­ing Block­works, she report­ed on mar­kets at Bloomberg News. She grad­u­at­ed from the Uni­ver­si­ty of Vir­ginia with a degree in Media Studies.

    Con­tact Casey via email at [email pro­tect­ed]



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