There are two prime reasons behind the fallout of 3AC (Three Arrows Capital) :
- Liquidation of 1 billion USD loan (lending firm)
- Genesis made a loss of more than a hundred million USD.
An investor from Morgan creek digital leaking the details about the liquidation of 1 billion USD shows fear in the mind of investors. In addition, the liquidity woes in the market might be the result of the extremely risky ratio of assets to equity in the financial year 2021.
The borrowing and lending at the insolvent platform Celsius suspended all the options to withdraw funds. Celsius ran into trouble with liquidity after witnessing a riskier assets-to-equity ratio of 19:1.
The risky business of Celsius
The ballooned value of Celsius is the result of operating on risky margins, according to the document analysis and review in the Wall Street Journal. Earlier to the latest equity raise, Celsius is said to come across as a good alternative to the banks. However, being a less risky alternative, Celsius had an asset-to-equity ratio of 19:1 billion USD. In addition, Celsius ended up giving under-collateralized loans to the entities.
The correct assets to equity ratio define the correct proportion of assets in a firm funded by the investors or shareholders. The ratio signifies the amount of debt an entity has put in leverage to fund the operation in the market. The higher or riskier ratio shows careless use of funds and higher debts.