I have read the leaked filings from the 3AC BVI(British Virgin Islands) court proceedings.
Let me summarize what went wrong with 3AC.
Luna/Terra Blow up
3AC lost around $600 million when Luna/Terra blew up. However, it was not that problematic for them. However, this blow-up resulted in the following events.
- Market Crash - Luna/Terra has around $40 billion market cap, and it went to 0 in 3 days. There were a lot of liquidations and a lot of sell pressure. 3AC wasn't ready for this. (I will explain in a bit)
- Credit Crunch - Because the market tanked and many lenders have money locked now with borrowers, and they don't have money to give more loans, or even if they have, they became cautious. This created a credit crunch in the market, and 3AC can.'t borrow any more without collateral because they were locked in Long positions.
Supercycle Thesis
So 3AC has a supercycle thesis in which Bitcoin and other assets are in the mid of the supercycle and not going to face any bear market in the near market. So basically, they are like, "To the moon, baby". So when BTC went $30k, they were sort of OK. However, they were never ready for $20k, and because of Terra/Luna, Bitcoin went from $30k to $20k pretty fast, and a lot of Altcoins lost a lot of valuation too.
Because of this, 3AC was getting called margin called from everywhere because they had long positions, and to save it, they needed to borrow more, but they didn't have any collateral.
So, in summary, they didn't manage risk appropriately and got rekt. There are some juicy details in the BVI court filings, and I created a video on it. Please check the link below.
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