This article comes fromThe Block、Blockworks, by Frank Chaparro and Casey Wagner

Odaily Translator |

Hedge fund Three Arrows Capital (Three Arrows Capital) has been in trouble this week, and now the market is raising a series of questions about its OTC trading firm TPS Capital.

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Sell ​​GBTC-related arbitrage trades to investors before the crisis

Just a few days before Three Arrows Capital was liquidated by several crypto exchanges and lending institutions, its subsidiary OTC trading company was still promoting new arbitrage trading opportunities to investors.According to investment documents obtained by The Block

, TPS Capital, an over-the-counter trading firm run by Three Arrows Capital founders Su Zhu and Kyle Davies, which pitched investors on arbitrage opportunities tied to Grayscale’s Bitcoin Trust GBTC before the crisis, plans to charge 20% through TPS Capital management fee.

"They pitched to so many people," said one person familiar with the matter.

Another source said Three Arrows began promoting the marketing material on June 7, which in retrospect may have been a last-ditch attempt to save itself before its funding crisis erupted.

As for arbitrage opportunities, the company said that Three Arrows Capital can lock BTC for 12 months through TPS and provide a promissory note.

As we all know, Three Arrows Capital is one of the largest investors in GBTC. Grayscale is seeking approval from the U.S. Securities and Exchange Commission (SEC) to convert GBTC into an ETF. The SEC will make a decision to approve or deny the application early next month.

Three Arrows' arbitrage investment plan is to structure a deal for a counterparty that will benefit from a steep discount to GBTC as the deadline for the SEC decision approaches. The discount rate of GBTC's current transaction price is 33.75%.

Marketing document note reads, "After conversion (ETF and GBTC can be exchanged for BTC), client will receive 1.x BTC minus our 20% performance fee. If no conversion within 12 months, client will receive 1* (end time Y - start time Y), Y = GBTC discount % at that time."

Bloomberg ETF analyst James Seyffart said that no matter what the SEC's final decision is, Three Arrows Capital will be able to make money. He explained, "This operation is equivalent to a structured note in traditional finance. But no matter what happens, they will take ownership of your Bitcoin and use your BTC to make money. They get your BTC, and at any time In both cases money/rewards are taken from investors.”

The marketing document described the opportunity more directly: "All you have to do is take out your BTC and we'll do the rest."

As previously reported, Three Arrows may face bankruptcy after it was liquidated by several exchanges and lenders., Three Arrows Capital is considering selling assets to obtain a bailout. Three Arrows co-founder Kyle Davies said in an interview that the company has suffered heavy losses in the broad market sell-off of crypto assets and has hired legal and financial advisors to help craft a solution for its investors and lenders. The company "hopes to reach an agreement with creditors to allow more time to develop plans," and it is still operating. Its creditors include BlockFi, Genesis and others.

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In addition to promoting GBTC arbitrage transactions, TPS Capital is also facing allegations of suspected misappropriation of user funds.

textAs reported by Blockworks

, a DeFi agreement supported by Sanjian Capital stated that the fund controls most of its Treasury funds, and the whereabouts of these funds are currently unknown. The protocol’s founders said they have not received any information from the Three Arrows Capital co-founders or the TPS Capital team since June 10.

It is reported that the agreement will complete a US$3.5 million seed round of financing by the end of 2021, led by Three Arrows Capital. As part of this funding round, the protocol received stablecoins USDC and USDT. The company can actively manage these tokens by lending and lending on a decentralized marketplace, or choose to place all or some of its tokens on TPS Capital, an OTC platform owned by Three Arrows Capital.

Three Arrows Capital claims to guarantee an 8% annual rate of return on its Treasury management services. The founder of the DeFi protocol said that due to the high yield, many protocols that received investment from Three Arrows Capital decided to use its services to deposit financing funds and part of their Treasury funds. The founder said the protocol is considering legal action and has approached two other protocols facing similar situations.