Three Arrows Capital, the Singapore-based crypto hedge fund founded by Su Zhu and Kyle Davies, was ordered into liquidation in June 2022 after leveraged bets went spectacularly wrong, leaving US$3.5 billion in creditor claims. The collapse triggered arrests, a nine-year industry ban and an asset freeze, and became the defining failure of the crypto winter.
Founded in 2012 by former schoolmates Su Zhu and Kyle Davies, 3AC began in emerging-market foreign-exchange arbitrage before pivoting to crypto in 2017. At its peak the fund claimed a net asset value of US$18 billion and backed projects including Aave, Avalanche and Ethereum, while holding a large position in the Grayscale Bitcoin Trust and a heavy investment in LUNA tokens made in February 2022.
The fund's downfall came with the crypto market rout of the first half of 2022. The collapse of the Terra ecosystem in May wiped out its LUNA bets, and with billions in borrowed money funding its trading, 3AC could not meet margin calls. Bankruptcy filings showed the fund faced US$3.5 billion in creditors' claims from 154 creditors, and liquidators led by Teneo put total losses above US$4 billion across 2021 and 2022.
The fallout was swift and severe. In June 2022 the Monetary Authority of Singapore reprimanded 3AC for exceeding its assets-under-management threshold and providing false information. In September 2023, MAS issued nine-year prohibition orders against Zhu and Davies, barring them from regulated financial activities, citing flagrant disregard of regulatory requirements and dereliction of directors' duties.
That same month, Zhu was arrested at Changi Airport while apparently attempting to leave Singapore, and was committed to four months' jail for failing to cooperate with liquidators. Davies' whereabouts remain unknown, with police directed to arrest him to serve a similar committal order. A British Virgin Islands court froze approximately US$1 billion in assets belonging to the founders and Davies' wife Kelly Chen, as liquidators alleged they were responsible for the fund's deterioration.
3AC's collapse set off a domino effect across the industry, contributing to the bankruptcies of crypto lender Voyager Digital and impacting firms including BlockFi and Blockchain.com. In a final act of defiance, Zhu and Davies launched a new crypto claims-trading platform, OPNX, in early 2023. The saga cemented 3AC as the emblem of the excesses of the crypto bull market and a cautionary tale about leverage, opacity and the limits of charismatic founder worship.
Zhu and Davies had met as students at Phillips Academy and later attended Columbia University before founding 3AC in 2012 as a foreign-exchange arbitrage shop. The pivot to crypto in 2017 coincided with the bull market that made them industry royalty.
In December 2023, a British Virgin Islands court granted liquidators a worldwide freezing order of up to US$1.14 billion against Zhu, Davies and Davies' wife Kelly Chen, alleging the founders should be held responsible for the fund's deterioration. Undeterred, the pair launched the crypto claims-trading platform OPNX in February 2023, a move widely seen as defiant.