Three Arrows Capital founders open up about the dramatic collapse of their once-promising hedge fund after spending five weeks in hiding. They claim that their botched cryptocurrency speculation had set off spiraling calls to margin on loans that should have been refused and never taken.
Background of 3AC
Kyle Davies and Su Zhu, both 35, first grew close in high school. They turned 3AC into a crypto trading titan before its demise forced creditors into bankruptcy. It accelerated an upsurge that caused mom and pop owners of Bitcoin and various other tokens to suffer significant losses.
Communicating from an unidentified location, Davies and Zhu outlined an underlying failure of risk control in which the effect of wrong-way bets was made worse by easy access to credit. They were alternately remorseful and defiant, Bloomberg reports.
The breakdown of the Terra ecosystem appears to have been the catalyst for Three Arrows, commonly known as 3AC, to collapse, which sent shockwaves across the cryptocurrency market. Investors assert that they are still owed $2.8 billion by the now-defunct firm.
The magnitude of the hedge fund’s debt following its implosion was made public on Monday in a 1,157-page court filing, with individual claims totaling more than $1 billion.
The founders would not disclose their whereabouts, but one of the lawyers on the conversation claimed that the United Arab Emirates (UAE) was their eventual location.
“Since the fact that we had intended to relocate the company to Dubai,” Zhu said, “We must visit there soon to determine whether we move there as initially intended or if the future has other plans for us.”
According to Zhu’s research, bets were made in the fund with the expectation that the cryptocurrency market would rise again, which led to the fund’s demise. He contrasted the collapse of 3AC to that of Celsius Network, a cryptocurrency lending company that stopped accepting withdrawals and sought bankruptcy safeguards after running out of cash to honor customer payments.
One of 3AC’s worst losses came from its investment in the Terra ecosystem and its token, LUNA, which in May effectively fell to zero. While attempting to maintain a low profile, the couple says that they are working with the authorities.
“For Kyle and I, there are a lot of weird people in crypto who have threatened us with death or made other forms of commotion,” Zhu added. “We believe that maintaining a low profile and maintaining physical security is in everyone’s best interest.”