Crypto hedge fund Three Arrows Capital is in deep trouble and the founders were basically on the run. Founders Zhu Su and Kyle Davies missed their court dates. This is according to creditors seeking payments on large unpaid loans. 3AC was a controversial crypto hedge fund in the past known for extremely bullish attitude towards the market. They went bankrupt following the bear market in June and have since become a hot topic of conversation. Of course, they denied a bankruptcy up to the last minute. Currently, they have resurfaced stating that the numerous death threats they received was the reason for their hiding.
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Drama Continues…
In a shocking turn of events, crypto hedge fund 3AC founders have reappeared. Following five weeks of absence, Kyle Davies and Su Zhu are now out in the open with a lot to say. This comes at a time when the creditors are seeking $2.8 billion in compensations.
According to a new report by Bloomberg, Three Arrows Capital co-founders were gone for over a month. In the meantime, the creditors were asking the authorities to track them down.
Zhu told Bloomberg that the primary reason for their hiding was in fact the numerous death threats they received. However, according to the co-founder, they did keep in touch with the authorities while hiding.
Trading Strategies
Furthermore, Davies stated that him and his partner truly believed in their financial strategies.
“We believed in everything to the fullest. We had all our, almost all of our assets in there. And then in the good times we did the best. And then in the bad times, we lost the most.”
To be honest, it is good to believe in yourself as long as you’re not taking other people’s money to work with. In a market where Elon can dump almost a billion worth of BTC without nobody finding out, you better believe in what you do.
To make matters worse, Zhu and Davies highlighted that the collapse was not a surprise. In fact, even Celsius and Voyager made the same mistake by betting on the wrong horse.
“It’s not a surprise that Celsius, ourselves, these kind of firms, all have problems at the same time. We have our own capital, we have our own balance sheet, but then we also take in deposits from these lenders and then we generate yield on them.
So if we’re in the business of taking in deposits and then generating yield, then that, you know, means we end up doing similar trades.”
Crypto Hedge Fund and Luna
Obviously, the failure of a crypto hedge fund co-founders did speak on how LUNA’s collapse damaged their business. According to Zhu, the annihilation of Terra (LUNA) ecosystem torpedoed their business model. Basically, LUNA reached zero in only a few days.
“What we failed to realize was that LUNA was capable of falling to effective zero in a matter of days and that this would catalyze a credit squeeze across the industry that would put significant pressure on all of our illiquid positions…
We had different types of trades that we all thought were good, and other people also had these trades. And then they kind of all got super marked down, super fast.
Because LUNA just happened, it was very much a contagion where people were like, ‘OK, are there people who are also leveraged long staked Ether versus Ether who will get liquidated as the market goes down?’ So the whole industry kind of effectively hunted these positions.”
The Fallen Crypto Hedge Fund
According to court documents, the lawyers representing creditors say that the founders have not made any significant cooperation.
“The physical whereabouts of the Debtor’s founders, Zhu Su and Kyle Livingstone Davies (the “Founders”) are currently unknown, and while a lawyer in Singapore purporting to represent the Founders recently approached the Foreign Representatives, the Founders have not yet begun to cooperate with the Foreign Representatives in any meaningful manner.”
As for assets, the creditors are concerned about tracing the money. For the most part, 3AC holds much of its funds in cash and cryptocurrencies which are easily transferable. With that, comes a risk that the authorities won’t be able to trace payments.
“Absent provisional relief, there is an actual and imminent risk that the Debtor’s assets may be transferred or otherwise disposed of by parties other than the court-appointed Foreign Representatives to the detriment of the Debtor, its creditors, and all other interested parties. Here, that risk is heightened because a substantial portion of the Debtor’s assets are comprised of cash and digital assets, such as cryptocurrencies and non-fungible tokens, that are readily transferrable.”
3AC Bankruptcy
With the bear market last month, crypto hedge fund 3AC faced strong pressure and went for bankruptcy. Primarily, the Terra Luna collapse jump started their issues while the massive crypto crash put a dent in the market.
Unfortunately, 3AC had taken massive loans from multiple firms within the industry. And sadly, most of their positions were liquidated as the result of the crash. Subsequently, this created a chain reaction bringing some of the entities down. The debts include a $650 million loan from Voyager Digital which has now filed for bankruptcy. Furthermore, there is a $270 million loan from Blockchain.com and an unknown amount from Genesis.
Reuters revealed in a report that the creditors are asking a US court to force the founders into cooperating.
Previously, Zhu said on Twitter that the firms was working with liquidators but they had broken an agreement. Apparently, the liquidators had done something unethical involving token options on a crypto project called StarkWare.
“Sadly, our good faith to cooperate with the Liquidators was met with baiting. Hope that they did exercise good faith wrt the StarkWare token warrants.”
At this point, the details regarding the StarkWare are still unclear.
