Three Arrow Capital Breaks Radio Silence

Market Meditations | July 26, 2022

Last Tuesday, we wrote an article discussing the collapse of Three Arrows Capital (3AC), one of the most renowned cryptocurrency investment firms.

  • Advisers in charge of liquidating the fund said in filings from early July that founders Su Zhu and Kyle Davies hadn’t cooperated with them and that the founders’ whereabouts were unknown.
  • The fund’s liquidity troubles began in mid-June, but Zhu and Davies finally broke five weeks of radio silence in an interview with Bloomberg on the 22nd of July.
  • During the interview, Zhu and Davies detailed the events leading to the fund’s collapse, which triggered a chain reaction that propelled the space into turmoil.
  • “The whole situation is regrettable”, and “many people lost a lot of money,” Davies said in the interview.
  • Creditors of 3AC recently filed paperwork saying they’re owed more than $2.8 billion in unsecured claims, with the figure expected to rise significantly.
  • To date, liquidators overseeing insolvency have gained control of assets worth at least $40 million.
  • High leveraged trades were 3ACs signature move, which meant they outperformed in the good times. Unfortunately, it also meant that they lost the most in the bad times, ultimately leading to the firm’s downfall.

During the interview, the co-founders described a host of interrelated, one-way bets and borrowing arrangements, which all blew up at once. This led not just to the collapse of 3AC, but countless financial difficulties at firms like Celsius, Voyager Digital, BlockFi, and more.