Key points to remember
- Three Arrows Capital’s Su Zhu and Kyle Davies opened up about their recent woes in a new Bloomberg interview.
- Zhu and Davies said they planned to move to Dubai and had faced death threats following the collapse of their business.
- They also denied allegations that they avoided communicating with the liquidators.
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The struggling hedge fund’s co-founders have detailed its premature collapse for the first time since declaring bankruptcy.
3AC co-founders break the silence
The co-founders of Three Arrows Capital started talking.
Su Zhu and Kyle Davies, the high school friends behind what was once one of the biggest funds in the crypto space, opened up about their company’s woes in an interview Friday with Bloomberg.
The locations of Zhu and Davies are currently unknown, but the interview revealed that they are in transit to Dubai. Zhu said the couple had faced death threats in recent weeks after the company known as 3AC was ordered to liquidate its assets and declare bankruptcy by a court in the British Virgin Islands last month.
Since then, a 1,000-page document leaked by the Singapore High Court has helped shed light on 3AC’s insolvency. In the document, several of the fund’s creditors complained that Zhu and Davies had cut off contact with them after facing lawsuits that required their attention. Now, it looks like the duo have been pressured to speak out and share their version of events.
“The whole situation is unfortunate,” Davies said, opening up about the current state of things at 3AC. In the lengthy interview, Zhu and Davies revealed how they misjudged the market, taking advantage of their long positions to gain maximum exposure to what they thought was a “Crypto Supercycle.” However, after the abrupt collapse of the Terra ecosystem put an estimated $600 million on the company’s balance sheet, things started to go from bad to worse.
“We got to know Do Kwon on a personal basis when he moved to Singapore. And we just felt like the project was going to do really big things, and had already done really big things,” Zhu said. , explaining how he and Davies had, in retrospect, trusted Terra and his division chief too much.
As Terra’s collapse rocked the crypto market, it set off a chain reaction of selloffs and liquidations that threatened 3AC’s other positions. Zhu said some market participants were “effectively chasing” the company’s leveraged long position in staked ETH to force a liquidation, driving prices down. Elsewhere, 3AC’s Grayscale Bitcoin Trust (GBTC) arbitrage trade left the firm underwater on its Bitcoin positions after GBTC’s premium turned into a discount. As Bitcoin fell below its previous cycle peak in mid-June, these so-called “risk-free” transactions that had once been the company’s bread and butter, brought it to the brink of collapse.
Much of the interview focused on Zhu and Davies clearing their names of several alleged wrongdoings. The pair dismissed claims they dodged communications from their creditors as 3AC grappled with insolvency. “We have been communicating with them since day one,” Zhu said.
Additionally, Zhu responded to allegations that he and Davies hid funds from liquidators in secret personal accounts. “People can call us stupid. They can call us stupid or delusional. And, I will accept that. Maybe,” he said. “But they’ll, you know, say I’ve leaked funds in the last period, where I’ve actually handed over more of my personal money. That’s not true.”
Although it will likely take months, if not years, for 3AC and its creditors to reach an agreement, Zhu and Davies said they want to contribute as much as possible to the process. “Things are very smooth so far and the focus is on helping with the creditor recovery process,” Zhu said. They also said they planned to keep a low profile while traveling to Dubai for personal safety.
The 3AC crisis has taken a toll on the industry, as many big crypto lenders have taken big hits after they gave Zhu and Davies loans that required little or no collateral. Last week, it was revealed that Genesis Trading had loaned the company more than $2.36 billion, while BlockFi, Voyager Digital and Celsius also suffered heavy losses after 3AC defaulted on their loans. Both Voyager and Celsius have filed for Chapter 11 bankruptcy in recent weeks.
Disclosure: At the time of writing this article, the author owned ETH and several other cryptocurrencies.