3AC's default led to Voyager Digital's bankruptcy.Chapter 11 filing discussed.Cryptocurrency market health discussed.Days after Voyager Digital (VYGVF) issued a default notice to Three Arrows Capital (3AC), the firm halted withdrawals, deposits, and trading on July 1, 2022. On July 6, 2022, the company declared bankruptcy. Why did Voyager risk so many customer assets to threaten its liquidity? Why did Voyager demand to secure its loan to 3AC with assets?FSInsight effectively characterized 3AC as running a "Madoff-Style Ponzi scheme". Before they disappeared, the founders made good use of their reputation to borrow from institutional lenders. This unfortunately included Voyager Digital.3AC Cratered From LeverageBefore the firm declared bankruptcy, investors who searched for 3AC learned that the firm had an estimated $10 billion in assets under management. After Voyager’s CEO, Stephen Ehrlich, looked at that huge sum, he, like many others, did not believe he would need assets to back loans of over $660 million. Within a few months, 3AC’s AUM shrank to $4 billion. The devaluation in crypto tokens hurt 3AC’s ability to pay its debt.On June 17, 2022, 3AC admitted that it had $3 billion worth of cryptocurrencies under management as of April 2022. It invested over $200 million in Luna (LUNA-USD) tokens in February 2022. When Luna lost its peg to the dollar, Luna lost nearly all its value in about a week. Luna’s demise is due to the f...
