Su Zhu and Kyle Davies, the runaway co-founders of Three Arrows Capital (3AC) have come forward to share their side of the story regarding 3AC’s collapse. They, however, maintained their innocence over the leak rumors with the investors’ funds.
In an exclusive interview with Bloombergthe duo cited high leverage betting, the fall of the Terra ecosystem and their holdings in Grayscale Bitcoin Trust (GBTC) as catalysts for the hedge fund’s collapse.
The founders admitted to making risky leveraged bets on investments, which exploded following the heat of the crypto winter. Their overconfidence led the fund to position itself in a type of market that did not go as expected.
“We believed in everything to the fullest, we had all of our, almost all of our assets in there. And then in the good times, we did the best we could. And then in the bad times, we lost the most.
“The whole situation is unfortunate, a lot of people have lost a lot of money.”
With the fall of Luna came the collapse of 3AC
The Colossal of Terra collapse was the deciding factor for 3AC. Not only did they lose their large positions in LUNA, but the resulting credit squeeze in the crypto market further drove the hedge fund into a death spiral.
3AC occupied important positions in Staked ETH (stETH), which suffered a leverage hunt. As prices in the crypto market fell with the collapse of the Terra ecosystem, many traders took the opportunity to go long against stETH causing its price to trade below from that of ETH.
To preserve their transactions, 3AC continued to borrow from major digital asset lenders and investors until the situation got out of control, 3AC exploded and the contagion affected other companies like digital travel, Celsius, because they have all filed for bankruptcy.
Reflecting on the incidence, Zhu said:
“What we didn’t realize was that Luna was capable of going to zero effective within days and that would catalyze a credit squeeze in the industry that would put significant pressure on all of our illiquid positions,”
How 3AC’s creditors are holding up
The aggrieved creditors have deposit to secure the hedge fund’s assets in Singapore, which, if granted, will allow them to recover some of their funds from the liquidation proceeds.
Zhu and Davies noted that they were working with the relevant authorities to facilitate the process of collecting from creditors.
3AC founders on their way to Dubai
Continued earlier reports To move 3AC’s headquarters from Singapore to Dubai, the distressed founders seek to find safety in the Emirates.
With Dubai positioning itself to become the global leader crypto hub, Zhu and Davies think they can get their lives in order from their next location in Dubai. The decision is to steer clear of the death threats that follow them from aggrieved investors.
“For Kyle and me, there are so many crazy people in crypto who have made death threats or all that kind of noise,” Zhu said. “We think it’s just in everyone’s interest if we can be physically secure and keep a low profile.”