After 3AC's collapse, centralized lenders with 3AC exposure had failed, while their decentralized counterparts liquidated collateral and continued operating
This current crypto nuclear bear market marks my third brush with generalised market carnage. And while they can sometimes feel like reruns …
Entrepreneur's HandbookArthur Hayes
Context & Ripple Effects
Three Arrows Capital’s collapse became a focal point for broader crypto-credit contagion: related coverage later characterized the period as a crypto winter shaped by TerraUSD, leverage and 3AC contagion. The immediate contrast was between lenders whose 3AC exposure produced insolvency and decentralized systems that enforced collateral liquidation.
Later accounts of the crisis connected 3AC’s failure with the wider 2022 crypto credit crisis, while scrutiny of lenders’ high-interest offers centered the incentives behind concentrated, leveraged credit exposure.
First-order effects
Centralized lenders with exposure to Three Arrows Capital fail, leaving their creditors and customers facing impaired access to funds.
Decentralized lenders liquidate 3AC-linked collateral under their operating rules and remain active rather than becoming insolvent.
Second-order effects
The divergent outcomes put centralized crypto lenders’ underwriting and exposure management under sharper pressure, while decentralized lenders gain a concrete resilience comparison.
Crypto-credit customers and counterparties have an incentive to distinguish between yield products reliant on discretionary lending decisions and collateralized lending systems that liquidate automatically.
Third-order effects
The episode points toward crypto lending competing increasingly on verifiable collateral controls and liquidation design, not only on promised yield.
If leverage-driven failures continue to spread through interconnected lenders, the crypto sector’s legitimacy gap will be shaped by whether credit risk is transparent and enforceable before contagion begins.
The trend: Crypto credit is moving toward a sharper divide between opaque, concentrated lending risk and systems that mechanically enforce collateral constraints.
“Number Three” is a sad but predictable story of #cryptocurrency centralised trading and lending businesses blowing up due to too much leverage. Long Live #DeFi. SOFYL https://cryptohayes.medium.com/ ... https://twitter.com/...
Clear (and humorous) recap from @CryptoHayes on: - 3AC and its collapse - The subsequent fallout on CeFi companies - “The [DeFi] protocols... did not have to halt any withdrawals... continued to issue loans... did not suffer any downtime.” https://entrepreneurshandbook.co/ ...
“Both centralised and decentralised lending companies / platforms had exposure to 3AC — and only the players in one of these two markets went belly up. The centralised lenders failed en masse, while their decentralised counterparts...” ~ @CryptoHayes https://entrepreneurshandbook…
Latest from @CryptoHayes is excellent: “Very few money managers stopped to engage the critical thinking part of their brain and ponder how the fuggity fuck Anchor generated these yields.” https://entrepreneurshandbook.co/ ...
The crypto carnage was driven by centralized lenders with weak risk controls and minimal collateral requirements Defi lending protocols operated as designed, and just notched another proof point through a catastrophic risk contagion 👇 https://twitter.com/...
This was a good read on how crypto broke, but I'm still left wondering why people are so excited about lending that requires 150%+ collateral. Is the TAM huge for this? Does crypto expand the market or materially lower costs? DeFi survived, so what? https://entrepreneurshandbook.…
An excellent article by BitMEX founder Arthur Hayes reviewing the character and behavior patterns of the founders of 3AC: The only way to juice the performance of your hedge fund is to become a directional trader, and/or use borrowed funds. 3AC did both . https://cryptohayes.medi…
Another excellent blog by @CryptoHayes - despite the market carnage, it has been encouraging to see how well DeFi protocols fared. I hope that regulators and the public see how DeFi can lead to better outcomes for lenders, borrowers, and investors. https://entrepreneurshandbook.c…
“Both centralised & decentralised lending companies/ platforms had exposure to 3AC - & only the players in one of these two markets went belly up.” Great analysis of the Three Arrows Capital (3AC) blowup and how decentralized platforms faired much better. https://cryptohayes.medi…