SINGAPORE — Few collapses have defined the 2022 crypto winter like that of Three Arrows Capital (3AC), the Singapore-based hedge fund whose co-founders Su Zhu and Kyle Davies went from industry royalty to fugitives, courtroom defendants and regulatory pariahs.
Zhu and Davies, who first met at Phillips Academy and later attended Columbia University, founded 3AC in 2012, initially arbitraging emerging-market foreign-exchange derivatives. By 2017 the fund had pivoted to cryptocurrencies, and at its peak it claimed a net asset value of US$18 billion, managing an estimated US$10 billion in crypto assets. It backed major projects including Aave, Avalanche, Ethereum and Luna, and held a large position in the Grayscale Bitcoin Trust.
The fund's leveraged bets unravelled with the collapse of the Terra ecosystem in May 2022. In later interviews, Zhu and Davies attributed the implosion to over-exposure to Terra's Luna token — which they said they never imagined could fall to effectively zero in a matter of days — to staked Ethereum (stETH), which lost its peg in the contagion, and to the Grayscale Bitcoin Trust, then trading at a steep discount. The credit squeeze that followed wiped out 3AC's illiquid positions and left it unable to repay lenders.
The Monetary Authority of Singapore reprimanded the fund for exceeding its assets-under-management threshold and providing false information. On June 27, 2022, a court in the British Virgin Islands ordered 3AC's liquidation, with advisory firm Teneo appointed as liquidator. The collapse set off a wave of bankruptcies across the sector, contributing to the failures of crypto lender Voyager Digital and others.
What followed was extraordinary. When Teneo's senior directors joined a Zoom call with Zhu and Davies, the pair kept cameras off and microphones muted, communicating only through lawyers. When liquidators tried to locate them at 3AC's Singapore office, the door was locked and unopened mail was piled up. Teneo warned of an imminent risk the founders could move remaining assets into offshore or untraceable accounts.
On September 29, 2023, Zhu was arrested at Changi Airport in Singapore while apparently attempting to leave the country. The Singapore courts had sentenced both founders to four months' imprisonment for deliberately failing to comply with court orders compelling cooperation with Teneo's investigation. Zhu served his term and was questioned in a two-day Singapore court hearing in early 2024 as liquidators hunted for billions owed to creditors. Davies' whereabouts remain unknown, with police directed to arrest him so he can serve his sentence.
The MAS later imposed a nine-year prohibition on both men, barring them from regulated activities and from serving as directors or managing capital-markets businesses in Singapore, after finding they had misled the regulator and failed to put adequate risk management in place. A BVI court froze about US$1 billion in assets belonging to Zhu, Davies and Davies' wife Kelly Chen, with Teneo alleging the founders should be held responsible for the deterioration in 3AC's position. Total debts owed to creditors are estimated at US$3.3 billion.
The 3AC saga remains Singapore's signature crypto scandal — a cautionary tale of leverage, opacity and hubris that reshaped how regulators across Asia view digital-asset hedge funds.