There’s a storm stirring up in the crypto market, one that involves the liquidator of Three Arrows Capital, 3AC, who might try to recover a staggering $1.2 billion from the Digital Currency Group, DCG, and the crypto loan provider, BlockFi. This succession of events follows a leak of an internal report from Teneo, the liquidator, projecting claims that could potentially amount beyond $1 billion against DCG and its Genesis lending subsidiary.
The scale of these claims gets even more interesting. They aren’t only preference claims but also the kind that result from issues surrounding the perfection of loan and security documentation. Complementing these substantial claims is another noteworthy aspect: preferential payments of more than $220 million to BlockFi.
Preference claims are often brought into the conversation if a hedge fund had knowledge about making payments that could put one or more creditors in a more favorable position than other creditors. Implementing this context into what’s happening now, we could be dealing with transactions by 3AC in a period known cryptically as the insolvency twilight zone. This situation has occurred following the collapse of the Terra Luna project this year.
DCG and BlockFi have decided to go radio silent regarding any plans to recover funds. Still, it’s noteworthy to highlight that DCG, a significant player in investing in crypto companies, is the parent company of CoinDesk.
From this development, we could draw several things. The world of crypto is as volatile and unpredictable as ever. As much potential as blockchain technology brings in revolutionizing industries, regulatory hazards are also capable of causing equally massive disturbances.
This debacle involving 3AC, DCG, and BlockFi hypothesizes a state of affairs that crypto markets, despite their digital establishment, are also susceptible to the conventional consequences of liquidation. They paint a precedent that the seemingly innovative wireworks of blockchain technology could magnify the impact of traditional issues such as preference claims and insolvency.
It stands to reason that the future of cryptocurrency isn’t merely contingent on its technological progress and ability for decentralization. It must also take into account a well-rounded focus on the human element and ethical practices, ensuring trustworthiness and transparency in crypto transactions that could help prevent predicaments such as these.
Source: Coindesk
