Three Arrows Capital
From Invertopedia, the encyclopedia of how things fail
Three Arrows Capital, or 3AC, was a Singapore crypto hedge fund founded in 2012 by Su Zhu and Kyle Davies[1]. It managed an estimated $10 billion in March 2022[1][7], borrowed heavily from crypto lenders, and lost big on Luna and other trades that spring[1][8]. A British Virgin Islands court ordered it liquidated on June 27, 2022[4], and its liquidators estimate creditors are owed about $3.3 billion[5][6].
Contents
The bet
3AC took large, highly leveraged positions in crypto tokens and crypto companies[2]. At the end of 2020 it was the largest holder of the Grayscale Bitcoin Trust, with a position worth $1 billion[8]. It put about $200 million into Luna[1]. Lenders let it borrow with very little collateral[8], and the bet was that prices would keep rising and that its trades would not all go wrong at once.
What happened
| 2012 | Su Zhu and Kyle Davies found Three Arrows Capital.[1] |
|---|---|
| 2020 – 2021 | 3AC manages more than its Singapore license allows, then tells regulators it has moved fund management offshore. The Monetary Authority of Singapore later calls that statement misleading.[3] |
| Mar – Apr 2022 | Assets are estimated at about $10 billion in March and about $3 billion in April.[1] |
| May 2022 | Luna and TerraUSD collapse. 3AC's $200 million Luna investment is wiped out.[1][9] |
| Jun 15, 2022 | As Bitcoin falls to about $20,000, Zhu tweets that 3AC is "communicating with relevant parties" amid insolvency rumors.[2] |
| Jun 27, 2022 | A British Virgin Islands court orders 3AC into liquidation, with Teneo as liquidator. Voyager Digital says 3AC has not repaid a loan of about $670 million.[1][4] |
| Jul 1, 2022 | 3AC files for Chapter 15 bankruptcy in New York to protect its US assets.[1][10] |
| Sep 2023 | Singapore's central bank bans Zhu and Davies for nine years. Zhu is arrested at Changi Airport and jailed under a four-month committal order for not cooperating with the liquidators. Davies faces the same order; Teneo says it does not know where Davies is.[5][7] |
| Dec 2023 | A BVI court freezes $1.4 billion of assets of Zhu, Davies and Davies' wife Kelly Chen while the liquidators' claims proceed. Zhu is released that month after serving three months.[6][11] |
| Mar 13, 2025 | A US bankruptcy judge in Delaware lets the liquidators raise their claim against FTX to $1.53 billion. In June, FTX's lawyers call the claim "illogical and baseless."[11][12] |
The kill shot
It borrowed against its reputation, put most of the money into a few crowded bets, and had no reserve when Luna, staked ETH and Bitcoin fell together.
Zhu and Davies told Bloomberg that Luna's collapse in May 2022 hit them first, then a trade in staked ETH, which fell below the price of ETH and, in Zhu's telling, led other traders to hunt the leveraged positions betting on it[8]. Of their crypto bets, Davies said, "We had all of our, almost all of our assets in there"[8]. Zhu called Bitcoin's drop from $30,000 to $20,000 "the nail in the coffin"[8].
Court filings show many of 3AC's loans needed only a small amount of collateral[8]. That left little for lenders to seize when the bets failed, and 3AC's collapse added to the distress at lenders including Voyager Digital, Celsius and BlockFi[8].
Red flags ignored
- Unsecured borrowing. Many loans needed only a small amount of collateral. Zhu said lenders were "comfortable" with the firm.[8]
- One-way bets. Large leveraged positions in GBTC, Luna and staked ETH all depended on crypto prices holding up.[2][8]
- Problems with the regulator first. 3AC broke its Singapore asset limit for months at a time in 2020 and 2021 and gave the regulator misleading information.[3]
- No public numbers. Outsiders could only estimate its size, from about $10 billion to $3 billion within two months.[1]
The cost
Creditors are owed about $3.3 billion, by the liquidators' estimate[5][6]. In mid-2022 the liquidators controlled assets worth at least $40 million[8]. Voyager Digital alone was owed about $670 million[1].
The liquidators are seeking $1.3 billion from Zhu and Davies[5]. They have also pursued a $1.53 billion claim against FTX and a $1.3 billion claim in Terraform Labs' bankruptcy[11][12].
The inversion
Size every bet as if your best idea and your second-best idea fail on the same day, and never let a lender's trust stand in for collateral.
What survived
The liquidation, still running. Neither founder had faced criminal charges in Singapore as of December 2023; the proceedings against them are civil[5]. Davies faced the same committal order, and in September 2023 Teneo said it did not know where Davies was[7]. In March 2026 the New York bankruptcy court asked the liquidators what steps remained before the US case could be closed[10].
The founders moved on to other ventures. After leaving prison, Zhu promoted a new crypto trading project, OX.FUN[6][13].
References
- ^ “Crypto hedge fund Three Arrows files for bankruptcy”. The Verge, July 2, 2022. Founded 2012, about $10 billion in March and $3 billion in April 2022, the Chapter 15 filing, the $670 million Voyager loan, the $200 million Luna loss.
- ^ “Cryptocurrency 'bloodbath' threatens multibillion-dollar hedge fund”. The Guardian, June 15, 2022. Singapore base, highly leveraged stakes, Zhu's tweet, Bitcoin near $20,000.
- ^ “MAS Reprimands Three Arrows Capital for Providing False Information and Exceeding Assets Under Management Threshold”. Monetary Authority of Singapore, June 30, 2022. The S$250 million limit breaches in 2020 and 2021 and the misleading statement about moving fund management offshore.
- ^ “Three Arrows Capital liquidation ordered by court in British Virgin Islands”. The Block, June 29, 2022. The June 27, 2022 liquidation order and Teneo as liquidator.
- ^ “Three Arrows' Zhu Su probed in Singapore court as liquidators step up hunt for assets”. The Straits Times (Bloomberg) via Asia News Network, December 14, 2023. About $3.3 billion owed, the $1.3 billion sought from the founders, the nine-year MAS bans, the arrest and four-month term, no criminal charges in Singapore.
- ^ “Crypto fund creator Su Zhu said his 3 months in a Singaporean prison were 'really enjoyable'”. Business Insider, January 26, 2024. Zhu served three months and was released in December 2023; creditors owed $3.3 billion; the Voyager default; Ox.Fun.
- ^ “Three Arrows Capital co-founder Zhu arrested in Singapore airport, sentenced four months in prison”. TechCrunch, September 29, 2023. Zhu's arrest and committal order, Davies' order and unknown whereabouts, the estimated $10 billion in assets.
- ^ “Three Arrows Capital founders Su Zhu and Kyle Davies tell story of crypto fund's collapse”. Bloomberg via Fortune, July 22, 2022. The Luna and staked ETH losses, low-collateral loans, the $1 billion GBTC position, the founders' quotes, $40 million under liquidators' control, and the knock-on hit to lenders.
- ^ “The 3AC founders reportedly failed at forex before switching to crypto”. The Verge, August 15, 2022. The Luna bet and the $200 million loss.
- ^ “In re Three Arrows Capital, Ltd., No. 22-10920”. U.S. Bankruptcy Court, S.D.N.Y., docket via CourtListener (entries through August 2026). Filed July 1, 2022; the March 10, 2026 order asking what remains before the case can close.
- ^ “US Court Approves 3AC's Bid to Expand $1.5B Claim Against FTX”. Decrypt, March 14, 2025. The March 2025 ruling on the $1.53 billion FTX claim and the December 2023 $1.4 billion worldwide freeze.
- ^ “FTX rejects 3AC's $1.5B claim, citing 'failed trading strategy'”. Cointelegraph, June 23, 2025. FTX's objection quote and 3AC's $1.3 billion claim against Terraform Labs.
- ^ “Three Arrows Capital”. Wikipedia. OX.FUN as a later venture of the founders (cross-check).