Shares of Voyager Digital crashed more than 60 per cent on Wednesday after the crypto broker revealed it could lose more than $650mn it had loaned to struggling hedge fund Three Arrows Capital.
Toronto-listed Voyager said it had loaned $350mn worth of the stablecoin USDC along with 15,250 bitcoin to Three Arrows, a crypto hedge fund that failed to meet margin calls from several lenders earlier this month.
The revelations throw more light on the extent of the damage wrought by the crisis at Three Arrows, a Singapore fund known for its bullish long bets on crypto. Other crypto lenders, including BlockFi and Genesis, also sought to call in their loans to the fund this month.
Three Arrows has been hit by the broader downturn in crypto markets that has unfolded since the collapse of the stablecoin Terra in May, in which the fund had invested heavily. Another crypto lender, Celsius Network, halted withdrawals this month.
Voyager offers rewards to retail investors who deposit their crypto, as well as a debit card and an app for trading digital assets. In return it promised customers yields of up to 12 per cent. As of the end of March, it held $5.5bn of crypto assets payable to customers.
Those liabilities included $840mn worth of stablecoin USDC and 33,000 units of bitcoin. A stablecoin is a type of cryptocurrency pegged to assets like the US dollar which acts as a bridge between existing financial markets and the crypto world.
Voyager said it had asked Three Arrows for repayment of the loan by the start of next week but was “unable to assess at this point the amount it will be able to recover”.
Shares were down 61 per cent in early trading, valuing the company at just C$150mn (US$116mn). The company’s stock is down 95 per cent since its peak in November 2021.
The announcement did not make any mention of whether Voyager held collateral on its loan to Three Arrows. It declined to comment further.
Earlier this month, Voyager said it “differentiates itself through a straightforward, low-risk approach to lending and asset management by working with a select group of reputable counterparties”. At the time chief executive Steven Ehrlich said Voyager was “well capitalised and in a good position to weather this market cycle and protect customer assets”.
Voyager said that, as of the start of this week, it had just $152mn in cash and crypto assets on hand, plus $20mn of cash restricted for the purchase of USDC. The lender said on Wednesday it had secured a credit line worth $200mn in cash and 15,000 in bitcoin from Alameda Research, the trading firm of crypto grandee Sam Bankman-Fried.
The terms of the credit line allow Voyager to draw down no more than $75mn over any 30-day period. Bankman-Fried’s FTX crypto exchange also this week extended a $250mn loan to BlockFi.
Just last month, Three Arrows Capital and Alameda had participated in a private placement of shares by Voyager that raised $58mn. Alameda currently owns 11 per cent of the company, Voyager said on Wednesday.
Voyager’s latest quarterly update to the market showed that, as of the end of March, four counterparties accounted for 79 per cent of its $2bn loan book. The top two alone accounted for more than half of the exposure.