3AC Is Broke. What’s Next for Its Multi-Million Dollar NFT Collection?

crypto briefing It explores whether Starry Night Capital will be forced to liquidate its coveted NFT collection and the impact such an event could have on the NFT space.

3AC faces liquidation

Three Arrows Capital is facing bankruptcy, but it is currently on a multi-million dollar collection of on-demand NFTs.

The troubled crypto hedge fund known as 3AC first raised concerns in the crypto community in early June as rumors circulated online that it had failed to meet margin calls on several of its loans. On June 17, Kyle Davis, who co-founded the firm with his high school classmate Su Zhu in 2012, revealed wall street journal That the fund was considering asset sales and a possible bailout to pay off its debts. He also revealed that he had lost over $200 million due to the collapse of Terra and the subsequent market downturn.

It soon became apparent that 3AC was facing a serious financial crisis, leaving the fund with few options other than drastic restructuring. On June 27, Voyager Digital issued the firm with a $665 million notice of default. A British Virgin Islands Court then Ordered the firm to liquidate its assets. 3AC filed for Chapter bankruptcy in New York last Friday.

Teneo Restructuring, the firm that has liquidated 3AC, is leaving no stone unturned to probe the fund’s illiquid assets. Last week, it was widely reported that Zhu had privately listed a Singapore property that he and his wife bought for $35 million and handed over to their three-year-old son in December 2021. As liquidators turn their attention to 3AC’s assets, Starry Night Capital, the NFT fund set up by the firm’s founders last year, could become their next target.

starry night capital

Starry Night Capital was launched by Zhu and Davis in partnership with the pseudonym NFT Collector Vincent Van Dough, Making its public debut on August 30, 2021, at the height of the period of the speculative NFT frenzy, the fund aims to create unique, culturally significant, one-of-a-kind creations by leading NFT artists.

Before Starry Night officially launched, 3AC was using its own funds to collect Art Blocks NFTs from acclaimed generative artists such as Tyler Hobbes and Dmitry Cherniak, as well as others from other in-demand collections such as Cryptopunks. with tasks. The purchase of 3AC raised the minimum prices of many of these collections to new highs; As on-chain data revealed that the firm had bought in top-tier collections such as Ringers and Fidenza, other collectors rushed to copy the merchandise to help them raise their prices.

However, the firm’s biggest purchase was yet to come. On August 27, the fund stunned NFT enthusiasts around the world when it bought Ringers #879 for 1,800 ETH (worth around $5.9 million at the time) from fellow collector Peter Molick, better known in the NFT space. pixelpit, Making purchases convenient for his Twitter followers, Zhu tweeted A photo of the striking NFT with the caption “Thesis: We Like the Goose”.

The Ringers #879 sale was a record-breaker for OpenC NFT sales at the time. But 3AC didn’t stop there. Under the Starry Night Capital banner, Zhu, Davis and Vincent Vando continued to spend big on NFT art. Notable purchases from the fund include “Pepe the Frog NFT Genesis” purchased for 1,000 ETH, XCOPY’s “DanKrupp” for 469 ETH, and Robbie Barratt’s “AI-Generated Nude Portrait #7 Frame #184” for 300 ETH. Bought for

With so many unique, unique pieces, it’s hard to value Starry Night’s collection at its peak. CoinMetrics researcher Kyle Waters Estimate The fund spent over $21 million on the NFT platform SuperRare alone. Adding to the thousands of ETH Starry Nights dropped on other marketplaces like OpenSea, the total spend comes close to the $100 million the fund reportedly started with.

Despite on-chain evidence showing that Starry Night has made millions of dollars in NFT purchases, only one firm has publicly announced an investment in the fund as part of its $100 million growth. KR1 PLC, a European digital asset investment company, reportedly made a $5 million stake in Starry Night Capital to gain exposure to the fund’s portfolio of high-value NFTs. With this in mind, it is unknown how much of Starry Night’s liquidity came from 3AC and its founders, and how much was provided by outside investors.

the starry night turns dark

As news of Three Arrows Capital’s liquidity issues hit social media in June, viewers kept a close eye on the firm’s affiliated projects to watch for signs of contagion.

The first indications that a starry night might be facing problems came on June 15, when Waters Told on Twitter that the fund has moved its entire collection of NFTs acquired through SuperRare to a new address. “The new wallet has some connection to the other 3AC wallets, but it is not yet clear what is happening,” Waters said, speculating that the transfer is in preparation for a liquidation or over-the-counter sale to another party. could have been done.

As the details of the relationship between Starry Night and 3AC remain unclear, viewers have been left to speculate about the fate of the fund’s NFTs. Some, such as John Hartrey, Head of Trading Strategies at Amatos, emphasis that Starry Night’s assets are silent, which means it will not be possible to use them to pay off 3AC’s debts. While 3AC launched Starry Night, it is likely that proceeds from any NFT sale will be distributed to the fund’s liquidity providers rather than 3AC’s creditors.

However, if 3AC contributed a significant amount of liquidity to Starry Night, the liquidators could force the sale of some of the fund’s NFTs to liquidate their stake. To avoid such a situation, another party would need to reach an agreement to buy 3AC’s stake directly from them. Under the current circumstances, it seems unlikely that Starry Night’s NFT will be phased out in the near future. However, the opaque nature of the fund’s contracts and backing, coupled with recent wallet movements, means a sell-off cannot be ruled out.

If Starry Night ever sells any of its NFTs, the collection has some way of reaching its previous purchase price, especially considering the recent market conditions. Many of the fund’s NFTs have some historical significance or derive their value from popular collections as unique examples. When Starry Knight bought pieces such as “Pepe the Frog NFT Genesis” and AlphaCentauriKid’s “Til Death Do Part”, it probably coincided with the thesis that the crypto space would grow exponentially over the next few years, meaning the number of unique NFTs. Early example art may be highly sought after. In the past, 3AC has discussed how it generally took a long-term approach to its investments. Likewise, it’s unlikely that Starry Night had any intention of selling pieces from its collection for many years—if ever.

Starry Night was launched during the so-called “NFT Summer” of crypto, and the minimum prices of most of the NFT collections it has invested in have declined in terms of ETH. ETH has also fallen in dollar terms, which means that NFTs that previously affected dizzying valuations are now trading for fractions of their all-time highs. In the current market downturn, forced liquidations will almost certainly result in a significant real loss for Starry Night and the untimely end of the fund’s pioneering investment strategy.

In the event that Starry Night is ordered to expire, this could potentially provide other collectors with a once-in-a-generation opportunity to purchase some of the most coveted NFTs on the market at heavily discounted prices. However, such an event would also send shockwaves through the NFT space, possibly pushing down floor prices for the collections that Starry Night has been heavily exposed to. While 3AC works through its liquidation, the NFT community will have to wait to see if one of the world’s most coveted NFT collections will fall victim to arguably the harshest crypto bear market ever.

Neither Three Arrows Capital, Starry Night Capital, nor Vincent Vando responded. crypto briefing Requests for comment at press time.

Disclosure: At the time of writing this feature, the author holds BTC, ETH, and several other cryptocurrencies.