What Happened to Three Arrows Capital (3AC)?
Three Arrows Capital was a prominent Singapore-based cryptocurrency hedge fund that collapsed spectacularly in June 2022, triggering a massive contagion across the crypto industry. Founded by Kyle Davies and Su Zhu, the fund managed over $10 billion at its peak before filing for bankruptcy after failed bets on Terra Luna and overleveraged positions.
Quick Answer
Three Arrows Capital collapsed in June 2022 due to massive losses from failed investments in Terra Luna and overleveraged trading positions. The Singapore-based crypto hedge fund, once managing over $10 billion, filed for bankruptcy and entered liquidation proceedings. Its collapse triggered a domino effect across the crypto industry, causing billions in losses for creditors and contributing to the broader 2022 crypto market crash. Founders Kyle Davies and Su Zhu fled Singapore and remain largely missing, with ongoing legal proceedings to recover assets for creditors.
📊Key Facts
📅Complete Timeline14 events
Three Arrows Capital Founded
Kyle Davies and Su Zhu establish 3AC as a traditional trading firm in Singapore. The duo had been childhood friends and previously worked together at Credit Suisse.
Pivot to Cryptocurrency
3AC transitions focus to cryptocurrency investments as the crypto market begins gaining mainstream attention. The fund starts building significant Bitcoin and Ethereum positions.
Major Growth During Bull Market
3AC experiences massive growth during the COVID-19 crypto bull run, expanding assets under management significantly. The fund becomes known for large, concentrated bets on crypto assets.
Peak Influence and Assets
3AC reaches peak influence with over $10 billion in assets under management. The fund is considered one of the most important players in the crypto hedge fund space.
Crypto Market Downturn Begins
Cryptocurrency markets begin declining from all-time highs, putting pressure on 3AC's leveraged positions. The fund's concentrated bets start showing significant losses.
Terra Luna Ecosystem Collapse
TerraUSD stablecoin loses its dollar peg and Luna tokens crash to near zero, wiping out 3AC's estimated $560+ million investment. This marks the beginning of 3AC's liquidity crisis.
Margin Calls and Liquidations Begin
3AC fails to meet margin calls from various lenders as crypto markets continue falling. Major crypto lenders including BlockFi and Genesis begin liquidating 3AC positions.
Communication Breakdown
3AC stops responding to creditors and counterparties, raising alarm across the crypto industry. Rumors of the fund's insolvency begin spreading widely.
Founders Flee Singapore
Kyle Davies and Su Zhu leave Singapore before bankruptcy proceedings begin. Their departure is seen as abandoning creditors and investors.
Bankruptcy Filing
3AC files for bankruptcy in New York, formally acknowledging its inability to meet obligations. The filing reveals the extent of the fund's financial distress.
Singapore Liquidation Order
Singapore courts order 3AC's liquidation, appointing Teneo as liquidators. The process begins to unwind the fund's complex web of investments and debts.
Contagion Spreads
Multiple crypto firms including Voyager Digital and BlockFi file for bankruptcy, partly due to exposure to 3AC. The collapse's full impact becomes clear across the industry.
Su Zhu Located and Arrested
Su Zhu is arrested at Singapore airport for failing to cooperate with liquidators. He is later released but faces ongoing legal proceedings.
Ongoing Asset Recovery
Liquidators continue working to recover assets for creditors, with limited success. The complex international nature of 3AC's holdings makes recovery challenging.
🔍Deep Dive Analysis
Three Arrows Capital (3AC) was founded in 2012 by childhood friends Kyle Davies and Su Zhu as a traditional trading firm before pivoting to cryptocurrency investments around 2017. The Singapore-based hedge fund quickly became one of the most influential players in the crypto space, managing over $10 billion in assets at its peak and making high-profile investments in Bitcoin, Ethereum, and various DeFi projects (Source: Financial Times, 2022).
The fund's downfall began with the collapse of the Terra Luna ecosystem in May 2022, where 3AC had invested heavily. When Terra's algorithmic stablecoin TerraUSD lost its dollar peg and Luna tokens became worthless, 3AC faced massive losses estimated at over $560 million. The situation was compounded by the fund's extreme leverage and interconnected positions across the crypto industry, including significant exposure to Grayscale Bitcoin Trust at a discount to Bitcoin's spot price (Source: Wall Street Journal, 2022).
As crypto markets crashed in early 2022, 3AC's overleveraged positions became unsustainable. The fund had borrowed billions from major crypto lenders including BlockFi, Genesis Trading, and Voyager Digital, using their own reputation and assets as collateral. When margin calls came in June 2022, 3AC was unable to meet them, triggering a cascade of liquidations and defaults that spread throughout the crypto lending ecosystem (Source: Bloomberg, 2022).
The collapse had far-reaching consequences, with 3AC owing creditors an estimated $3.5 billion. Major crypto firms including Voyager Digital, BlockFi, and Genesis Trading all faced severe financial distress or bankruptcy as a result of their exposure to 3AC. Meanwhile, founders Davies and Zhu fled Singapore before the bankruptcy filing, with their current whereabouts largely unknown. Court-appointed liquidators continue working to recover assets for creditors, though recovery rates remain uncertain (Source: Reuters, 2023).