BlockFi Seeks to Quell Fear Amid Fallout from Crypto Hedge Fund Three Arrows

Yueqi Yang and Hannah Miller, Bloomberg News

The BlockFi logo on a smartphone arranged in Little Falls, New Jersey, U.S., on Saturday, May 22, 2021. Elon Musk continued to toy with the price of Bitcoin Monday, taking to Twitter to indicate support for what he says is an effort by miners to make their operations greener. Photographer: Gabby Jones/Bloomberg , Bloomberg

(Bloomberg) -- Crypto lending platform BlockFi Inc. said it continues normal operations and no client funds are impacted, in an apparent move to allay concerns over contagion risks from the suspected troubles at crypto hedge fund Three Arrows Capital LLC.

BlockFi confirmed it recently had a large client that failed to meet its obligations on an overcollateralized margin loan, and it “fully accelerated the loan and fully liquidated or hedged all the associated collateral,” Chief Executive Officer Zac Prince said on Twitter, without naming the client.

Earlier, the Financial Times reported that BlockFi was among companies that liquidated at least some of Three Arrows’ positions as the crypto hedge fund fails to meet margin calls.

The crypto industry has been shaken by the fall from grace of major lending platform Celsius Network Ltd, which has frozen withdrawals since Sunday, followed by the apparent troubles at Three Arrows. Market participants are concerned that more companies will suffer from collateral damage. Crypto derivatives exchange Deribit, whose parent company counts Three Arrows as a shareholder, said on Twitter Thursday that it remains “financially healthy,” despite having a net debt that it now considers “potentially distressed.”

Singapore-based Three Arrows is among the world’s biggest players in the crypto industry, holding investments and tokens in a wide range of crypto projects. On Tuesday, its co-founder Zhu Su tweeted that the company is committed to “working this out,” without providing further details. Three Arrows didn’t immediately respond to a request for comment by Bloomberg.

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“We believe we were one of the first to take action with this counterparty,” BlockFi’s Prince said. BlockFi said it continues to actively lend and fulfill withdrawal requests. Based in Jersey City, New Jersey, the company recently cut headcount by 20%, and a spokesperson said its executive team, including founders Prince and Flori Marquez, took a pay cut due to the market condition. It is looking to raise new funding at a reduced valuation of about $1 billion, Bloomberg News reported earlier, citing people with knowledge of the plan.