Key Takeaways
- Three Arrows Capital’s Su Zhu and Kyle Davies have spoken out on their recent woes in a new Bloomberg interview.
- Zhu and Davies said that they are planning to relocate to Dubai and had faced death threats following their firm’s collapse.
- They also denied allegations that they had avoided communicating with liquidators.
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The distressed hedge fund’s co-founders have detailed its untimely collapse for the first time since declaring bankruptcy.
3AC Co-Founders Break Silence
Three Arrows Capital’s co-founders have started talking.
Su Zhu and Kyle Davies, the high school friends behind what was once one of the crypto space’s biggest funds, have spoken out about their company’s woes in a Friday interview with Bloomberg.
Zhu and Davies’ locations are currently unknown, but the interview revealed that they are in transit to Dubai. Zhu said the pair had faced death threats in recent weeks after the firm popularly 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 leaked document from 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 contact with them after they were presented with legal proceedings requiring their attention. Now, it appears the duo has been pushed to speak out and share their side of events.
“The whole situation is regrettable,” said Davies, opening up about 3AC’s current state of affairs. In the lengthy interview, Zhu and Davies revealed how they had misjudged the market, leveraging up their long positions to gain maximum exposure to what they believed would be a “crypto Supercycle.” However, after the abrupt collapse of the Terra ecosystem put an estimated $600 million dent in the firm’s balance sheet, things started to go from bad to worse.
“We began to know Do Kwon on a personal basis as he moved to Singapore. And we just felt like the project was going to do very big things, and had already done very big things,” said Zhu, explaining how he and Davies had, in retrospect, put too much faith in Terra and its divisive leader.
As the Terra collapse shook the crypto market, it started a chain reaction of sell-offs and liquidations that threatened 3AC’s other positions. Zhu said that certain market participants were “effectively hunting” the firm’s leveraged long position on staked ETH to force a liquidation, driving prices lower. Elsewhere, 3AC’s Grayscale Bitcoin Trust (GBTC) arbitrage trade left the firm underwater on its Bitcoin positions after GBTC’s premium flipped into a discount. As Bitcoin broke below its previous cycle’s high in mid-June, these so-called “risk-free” trades that had once been the firm’s bread and butter, brought it to the brink of collapse.
A large part of the interview focused on Zhu and Davies clearing their names of several alleged wrongdoings. The pair rejected claims that they had dodged communications from their creditors as 3AC grappled with insolvency. “We have been communicating with them from day one,” Zhu said.
Additionally, Zhu addressed claims that he and Davies hid funds from liquidators in secret personal accounts. “People may call us stupid. They may call us stupid or delusional. And, I’ll accept that. Maybe,” he said. “But they’re gonna, you know, say that I absconded funds during the last period, where I actually put more of my personal money back in. That’s not true.”
While it will likely take months, if not years, for 3AC and its creditors to reach agreements, Zhu and Davies said they want to assist in the process as much as possible. “For now, things are very fluid and the main emphasis is on aiding the recovery process for creditors,” Zhu said. They also said they plan to keep a low profile on their way to Dubai to ensure their personal safety.
The 3AC crisis has wreaked havoc across the industry because many major crypto lenders took big hits after entrusting Zhu and Davies with loans that required little to no collateral. Last week, it was revealed that Genesis Trading had loaned the firm over $2.36 billion, while BlockFi, Voyager Digital, Celsius are also suffering heavy losses after 3AC defaulted on their loans. Both Voyager and Celsius have filed for Chapter 11 bankruptcy in the last few weeks.
Disclosure: At the time of writing this piece, the author owned ETH and several other cryptocurrencies.