Three Arrows Capital (3AC) was one of the most prominent cryptocurrency hedge funds in the world before its catastrophic collapse in June 2022. Founded in Singapore by Su Zhu and Kyle Davies in 2012, the firm grew from forex trading roots into one of the most aggressive players in the crypto bull market — managing an estimated $10–18 billion at peak. When the Terra/LUNA ecosystem collapsed in May 2022, the firm’s heavily leveraged positions unraveled across multiple major lending platforms, triggering billions in liquidations and contributing to the worst crypto contagion event since the 2014 Mt. Gox collapse.
| — | — |
| Founded | 2012, Singapore |
| Founders | Su Zhu, Kyle Davies |
| Peak AUM (est.) | ~$10–18 billion (early 2022) |
| Collapse date | June 2022 |
| Insolvency filing | British Virgin Islands, July 2022 |
| Total creditor claims | ~$3.5 billion |
Background: Su Zhu and Kyle Davies
- Su Zhu graduated Harvard, worked at Credit Suisse in interest rate derivatives trading before co-founding 3AC
- Kyle Davies also graduated Harvard, worked at Credit Suisse alongside Zhu
- 3AC began as a relative-value forex arbitrage fund before pivoting to crypto in the mid-2010s
- Became known for early and concentrated bets on Bitcoin and Ethereum, correctly calling the 2021 bull run
- Zhu’s “Supercycle” thesis — the belief that Bitcoin would permanently overcome cyclical bear markets due to institutional adoption — shaped 3AC’s increasingly concentrated and leveraged approach
The GBTC Trade
3AC built one of the largest positions in the Grayscale Bitcoin Trust (GBTC) through the GBTC “creation arbitrage” — a trade that worked as follows:
- Borrow BTC from lenders
- Deposit BTC into GBTC to receive GBTC shares (at NAV)
- GBTC historically traded at a significant premium to NAV (up to 30%+)
- After a 6-month lockup, sell GBTC shares at the premium — pocketing the spread
The trade worked when GBTC was the only regulated Bitcoin vehicle for US institutions and maintained its premium. In 2021, the GBTC premium collapsed to a discount (eventually reaching -30% to -40%) when competing products emerged. 3AC’s GBTC position became trapped capital that could not be sold without realizing massive losses. Estimated GBTC holdings exceeded $650M at peak.
LUNA Exposure
3AC was an early and vocal supporter of the Terra/LUNA ecosystem. The firm publicly backed Terraform Labs and held:
- An estimated $559.6M in LUNA (per court filings)
- Lock-up in various Terra/LUNA ecosystem positions
When UST depegged and LUNA collapsed from ~$80 to near zero in May 2022, this position was effectively wiped out — representing the triggering catalyst for 3AC’s insolvency.
The Cascade: $3.5 Billion in Liabilities
As LUNA collapsed, 3AC faced simultaneous margin calls across multiple borrowing relationships:
| Creditor | Claimed Amount |
|---|---|
| Genesis Global Trading | ~$2.36 billion |
| Voyager Digital | ~$650 million |
| BlockFi | ~$80 million |
| Celsius Network | undisclosed |
| Deribit | undisclosed |
| BitMEX | undisclosed |
| Various lending protocols | various |
Total creditor claims exceeded $3.5 billion. Liquidators from Teneo were appointed in the British Virgin Islands in July 2022.
Founders’ Disappearance and Aftermath
- Su Zhu and Kyle Davies became unreachable to creditors and courts after the collapse
- In July 2022, liquidators applied for contempt orders after the founders failed to cooperate with proceedings
- Su Zhu was arrested in Singapore in September 2023 attempting to board a flight; sentenced to 4 months in prison for failing to cooperate with liquidators
- Kyle Davies remained at large in Dubai as of 2023–2024
The two launched Open Exchange (OPNX), a controversial “claims exchange” for trading bankruptcy claims — widely criticized as an attempt to profit from misfortune while evading accountability.
Related Terms
Sources
- Teneo (2022). “Three Arrows Capital Liquidation: First Report of the Liquidators.” Teneo Restructuring, British Virgin Islands, September 2022.
- MacKenzie, D. & Millo, Y. (2003). “Constructing a Market, Performing Theory.” American Journal of Sociology.
- Stancil, J. et al. (Bloomberg Intelligence). (2022). “Crypto Credit Contagion: How 3AC Triggered a Chain Reaction.” Bloomberg Intelligence Crypto Report, July 2022.
- Thurman, A. (2022). “How Three Arrows Capital Transformed Into a $10 Billion Hedge Fund—Then Collapsed.” CoinDesk Investigative Report, July 2022.
- Gorton, G. & Metrick, A. (2012). “Getting Up to Speed on the Financial Crisis.” Journal of Economic Literature, 50(1).