Algorand Foundation Files Claim Against Three Arrows Capital (3AC)

Algorand Foundation reveals it was involved with Three Arrows Capital. What does that mean for Algorand? We try to make sense of this latest mess 3AC has gotten itself into. 

Covered:

  • Algorand Foundation Files Claim Against Three Arrows Capital
  • What This Means For Algorand
  • Algorand Foundation: The Big Scheme Of Things

Algorand Foundation Files Claim Against Three Arrows Capital

Earlier today, crypto Twitter analyst Dr. Soldman Gachs revealed a list of claimants against Three Arrows Capital (3AC) thanks to Su Zhu’s filing against his own fund. Dr. Soldman Gachs obtained the list thanks to being one of 3AC’s creditors.

Most of the list wasn’t surprising (Celsius, BlockFi, etc.) but one definitely stood out: Algorand Foundation.

Mere hours after the revelation, the Algorand Foundation — which is charged with promoting the Algorand blockchain — confirmed this was indeed true. “Last September, the Algorand Foundation entered a one-off OTC trade with 3AC. We have reason to believe 3AC violated the associated lockup terms and as such are seeking remuneration per the terms of the agreement….,” the foundation said via Twitter.

It was certainly jarring to find the Algorand name associated with 3AC because typically it had been exchanges, VCs, and individual investors up to this point. How did a blockchain protocol get wrapped up into this mess?

According to the foundation, it’s not what it looks like.

Recommended: Click here, If You Want To Learn More About The Three Arrows Saga

What This Means For Algorand

“The Algorand Foundation never provided 3AC with unsecured loans or a line of credit. See our Transparency Report,” the Foundation tweeted in order to get ahead of the obvious questions. As you’ll recall, what got Voyager to go t**s up was a rather obscenely large and unsecured to loan to the Jordan Belfort of crypto Su Zhu and his fund 3AC.

What does the transparency report tell us about Algorand’s exposure to 3AC? Let’s take a look.

‘As a part of our funding strategy, the Foundation has also started a parallel OTC sales program that has released, towards the end of this reporting period, 76.45M Algo from the Foundation 500M Algo endowment. The advantage of this program is to bring funding with no short to medium term market impact, due to an agreed, long term, commitment of counterparties to the Algo and the Algorand ecosystem. We expect the program to distribute funds also in the next reporting period, although the nature of this program allows the foundation to more rapidly fulfill its funding needs so we expect it to be concentrated in specific periods and not to be continued indefinitely. In fact, beyond spreading the potential market impact across long periods of time from now, another advantage of this program is to bring into the ecosystem valuable partners that are crucial in this moment for the scaling of the ecosystem itself. This program also relieves pressure on our regular structured selling,’  excerpt rom Algorand Foundation’s ‘Transparency Report’ for September 2021

The transparency report also noted that, “Algo are distributed to the market by the Foundation to fund its operations, build the ecosystem and community, support research and development, and increase token circulation and decentralization.”

In sum, their exposure to 3AC amounts to the foundation providing Algo for a lower than market price in exchange for a lockup period. The Algorand Foundation then can use the proceeds from the exchange to fund projects in the Algorand ecosystem. It’s also worth noting that the OTC trade (meaning over-the-counter) did not affect the price of ALGO on exchanges.

However, the transparency report did also note “We will present below, and in the forthcoming Ecosystem Development Progress Report, how sales proceeds and Algo have been used in achieving these objectives.”

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Algorand Foundation: The Big Scheme Of Things

Looking at the latest transparency report from Algorand for March 2022, it’s unclear exactly how much Algo exchanged hands between 3AC and Algorand. Not to mention, how much cash exchanged hands in the transaction between the two parties. For now, all we know is that a total of 76 million ALGO from a war chest of 500 million was released during that period.

At this time, it’s unclear exactly how much of that 76 million went to 3AC because there is no mention of OTC trades in the report. For all we know, it could have been divvied up to various other institutional investors, and the resulting chunk given to 3AC is peanuts in the grand scheme of things.

The most interesting part of Algorand’s admission lies in the reason they are taking action against 3AC. “We have reason to believe 3AC violated the associated lockup terms,” they noted. Nowhere in their statement, do they mention that 3AC failed to pay up for the Algo. Though, we also don’t know what the lockup terms were.

Did 3AC buy it all up front? Why was there a lockup period if it was an OTC trade (selling it all at once wouldn’t affect market price)? These are questions worth answering.

Regardless, it’s important to think big picture here. Algorand is in no way in trouble because of this. Unlike the savings and lenders and exchanges that have gone bankrupt of late, Algorand isn’t going around lending Algo, rather are selling their token to fund projects. It’s a big, big difference.

At worst, 3AC still owes some money to Algorand from unlocked sales that are being liquidated. But if that max is 76 million of Algo’s almost 7 billion circulating supply, that’s a drop in the bucket.

That said, it will be interesting to see what the details of the lock-up terms were. Though, the fate of Algorand in no way shape, or form hangs on the balance of what’s revealed.

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