After 3AC's collapse, centralized lenders with exposure to 3AC 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.

Entrepreneur's Handbook 2022-07-03 Arthur Hayes

Context & Ripple Effects

Three Arrows Capital's insolvency became a transmission channel for a broader crypto credit crisis, later framed alongside FTX's implosion in retrospectives on the 2022 credit crisis. Related coverage also ties the damage to lenders' high-interest-rate promises, whose losses ultimately left 3AC's lenders bankrupt.

The immediate divide was operational: decentralized lenders liquidated pledged collateral and stayed active, while centralized lenders carrying 3AC exposure failed. That contrast made collateral enforcement, rather than yield alone, central to how crypto-credit platforms were judged.

First-order effects

Centralized lenders exposed to Three Arrows Capital lost the ability to continue operating after its collapse, while decentralized lenders preserved operations by liquidating related collateral.
3AC's creditors faced sharply different outcomes depending on whether their lending structure could execute collateral liquidation during the market break.

Second-order effects

The failures put high-yield crypto lending models under sharper scrutiny, particularly after later reporting described lenders going bankrupt while 3AC's founders profited from those promises the lenders' high-interest-rate promises.
Crypto borrowers and depositors had stronger reason to favor platforms with transparent collateral and automated liquidation rules over lenders whose exposures could become opaque in a contagion event.

Third-order effects

If repeated stress events continue to separate liquidating protocols from centralized lenders, crypto credit is likely to compete increasingly on loss-containment design rather than advertised yield.
The split feeds the broader crypto-winter contagion narrative, widening the sector's legitimacy gap when failures at centralized intermediaries undermine confidence in crypto finance overall.

The trend: Crypto credit is bifurcating between models built around immediate collateral enforcement and centralized intermediaries vulnerable to concentrated counterparty exposure.

Discussion

@cryptohayes Arthur Hayes on x
“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/...
@thestalwart Joe Weisenthal on x
Big win for DeFi this cycle. While CeFi lenders are seeing their equity getting totally wiped out, the big DeFi protocols are only down around 90% https://twitter.com/...
@coindesk @coindesk on x
EXCLUSIVE: A tangle of offshore entities connected to the embattled crypto hedge fund Three Arrows includes a trading unit, TPS Capital, that's said to remain quite active - @thesamreynolds reports https://www.coindesk.com/...
@ummjackson Jackson Palmer on x
So these guys have just gone MIA while their guy in the Virgin Islands handles the bankruptcy? https://twitter.com/... https://twitter.com/...
@ernestocontrer Ernesto Contreras on x
“When you remove trust from the equation and rely purely on transparent lending standards executed by impartial computer code, you get a better outcome. This is the lesson to be learned” -@CryptoHayes's essay on 3AC & ecosystem is my best read this week! https://entrepreneurshand…
@mdudas @mdudas on x
“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…
@stacyannj Stacy Elliott on x
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/ ...
@lukeyoungblood @lukeyoungblood on x
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…
@bwertz Boris Wertz on x
“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…
@matthuang Matt Huang on x
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/ ...
@scottmelker @scottmelker on x
Three Arrows Capital fucked up so bad that they skipped 14 levels of bankruptcy and went straight to chapter 15. https://www.theblock.co/...
@garrytan Garry Tan on x
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/...
@pt Parker on x
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.…
@wublockchain Wu Blockchain on x
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…
@zachweinberg @zachweinberg on x
It's only web3 if it comes from the Defi region of France. Otherwise it's just sparkling finance. https://twitter.com/...
@mdudas @mdudas on x
Voyager is a centralized crypto FinTech that has nothing to do with Web3 https://twitter.com/...
@moonlamboio Moon Lambo on x
Voyager has suspended all trading, deposits, and withdrawals indefinitely. In a nutshell: They ran out of money. 💸 They acknowledge a part of the problem is the insolvency of Three Arrows Capital. This is a domino effect spreading throughout crypto. https://www.investvoyager.com/…
@investvoyager @investvoyager on x
An update to customers: https://www.investvoyager.com/ ...
@alexhern @alexhern on x
idk feel like it's starting to become clear that banking regulations are quite good and a regulation-free clone of finance... isn't https://www.investvoyager.com/ ...
@bitboy_crypto Ben Armstrong on x
I hope you are learning. SELF-CUSTODY is the only solution for non-traders. Crappy job @investvoyager #crypto #bitcoin https://finance.yahoo.com/...
@modern_rock @modern_rock on x
Another day another insolvent crypto... people can't be still this blind can they? https://twitter.com/...
@preetbanerjee Preet Banerjee on x
Democratizing finance dies in sunlight? https://twitter.com/...

Chronicles