Crypto Firm Arca Closed Its Terra-Exposed Digital Yield Fund

Crypto hedge fund Arca shuttered its Digital Yield Fund less than a year after its launch due to the broader market downturn, a person close to the firm told CoinDesk. The fund had slightly over $20 million in assets under management at the time of its closure, and the capital was returned to investors, according to the person.

“After a strategic business review, we have decided to close our Digital Yield Fund which took effect Aug. 31,” Arca CEO Rayne Steinberg confirmed in an email to CoinDesk. “Given changing market conditions, we believe that this decision was in the best interest of our investors.”

Arca announced the actively-managed Digital Yield Fund in September 2021 and targeted effective yields in the low double digits. The fund had a gross asset value of $53 million as of June 30, according to the firm’s annual Investment Adviser registration documents.

In an investor letter sent out in May, Arca revealed that the fund had exposure to Terra’s collapsed terraUSD (UST) stablecoin. The exposure didn’t force the closure, said the source, but was rather an example of the market turbulence that shifted Digital Yield’s risk-reward balance. Arca remains open to launching a similar product in the future, according to the source.

Arca manages three other funds. The flagship Digital Assets vehicle invests in the tokens of crypto companies and nearly doubled its sales to investors year-over-year to $191.7 million, according to a regulatory filing last week. The venture capital-focused Arca Endeavor and a non-fungible token (NFT) fund had gross asset values of $10 million and $24.4 million, respectively, at the end of June.

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