From Golden Boys to Ghosts: The Three Arrows Capital Saga

The Rise and Fall of Three Arrows Capital: A Tale of Arrogance and Consequences

We begin our story in Singapore, at the now-deserted office of Three Arrows Capital (3AC). Creditors’ mail piles up outside, each letter a testament to the company’s debts. Co-founders Su Zhu and Kyle Davies, once the golden boys of the crypto world, are nowhere to be found. Their timing is impeccable; 3AC has just declared bankruptcy, leaving creditors owed hundreds of millions, if not billions, of dollars.

But their story wasn’t always so grim. A decade ago, Zhu and Davies were just two traders at Credit Suisse in Tokyo. Discontent with making money for someone else, they left to establish their hedge fund. Starting with a modest personal investment of around a million dollars, they quickly found success. Despite initial capital constraints, their confidence in their money-making abilities and their willingness to borrow was unshakable.

Recalling an early challenge, Davies recounts needing to double their capital in two weeks to meet the requirements of their prime brokers. Undeterred, he raised the necessary funds over a single weekend, contacting proprietary trading firms in Chicago. This blend of confidence and audacity was their trademark, earning them a reputation in the crypto world.

Their bullish outlook and promotion of the “supercycle” theory, which posited that crypto markets were on the cusp of mass adoption and would no longer experience bear markets, gained traction. Su Zhu was particularly vocal, asserting that this cycle was different, where Web 3 would replace Web 2, and Bitcoin would surpass gold. His conviction was unwavering, branding anyone with lesser belief as “gross.”

Riding this high, 3AC adopted an aggressive investment strategy, borrowing as much as they could to fuel their bullish crypto plays. They approached major crypto lenders like Celsius and Voyager, presenting themselves as low-risk, successful traders in need of loans. By the end, they had amassed a staggering $3.5 billion from 33 different lenders.

Then, the crypto market crashed in May 2022. The ensuing crisis caught 3AC off guard. Despite their earlier assurances and even a one-page document claiming a net asset value of $2.3 billion, creditors grew anxious. Some, like blockchain.com, sought repayment, but Davies allegedly threatened them with a boycott if they persisted.

As the market continued to decline, Davies admitted to some lenders that they wouldn’t be able to repay if the situation didn’t improve. This admission led to a panic among lenders, who rushed to withdraw their funds. Unlike before, when confident reassurances were given, this time there was only silence from 3AC. A tweet from Su Zhu indicated they were in communication with relevant parties, but insiders knew otherwise.

Rumors swirled about the founders’ whereabouts and financial dealings. Reports emerged of extravagant purchases, including a series of mansions and a $50 million super yacht. This yacht was allegedly intended to surpass any owned by a Singaporean billionaire. Speculation suggests these assets were bought with borrowed money, a claim supported by a signed affidavit.

Suzu, in a previous tweet, seemed to foreshadow this moment, noting that “climate change talk is cheap, but sailing the seven seas on your yacht as an international fugitive is expensive.” His lifestyle also included residing in a multimillion-dollar bungalow, ostensibly owned by a trust in his three-year-old’s name, potentially to shield it from bankruptcy proceedings.

As 3AC hires lawyers to protect their assets, creditors are left in the lurch, symbolizing a broader issue within the crypto lending industry. Zhu and Davies initially used their funds, but the influx of capital from crypto lenders exacerbated their risk-taking. This raises questions about the lenders’ due diligence, especially given the dubious proof of 3AC’s financial stability.

Ultimately, it’s regular investors who bear the brunt of these failures. The story of Three Arrows Capital serves as a cautionary tale of unchecked arrogance, highlighting the need for transparency and accountability in the crypto industry.