Kyle Davies and Su Zhu first met at
Phillips Academy, and both studied at
Columbia University before working for
Credit Suisse for brief spells before setting up Three Arrows in 2012. In its early years, the company was focused on arbitraging emerging-market foreign-exchange derivatives and engaged in the practice of finding mispriced derivatives on electronic platforms and keeping them even if banks asked to cancel or amend the trades. This strategy, however, resulted in the fund only earning fractions of a cent for each dollar that was traded. This practice continued until banks started to cut off the fund from that market in 2017, which began the company's shift to cryptocurrencies. The fund's last public statement claimed a net asset value of $18 billion. Blockchain analytics firm Nansen estimated in March 2022 that Three Arrows managed about $10 billion in cryptocurrency assets, although there is speculation that most of their visible assets were sourced by uncollateralized borrowing from various lending platforms. The firm's founders amassed a large following on Twitter with cryptocurrency-related topics. Su Zhu had more than 500,000 followers shortly before the fund failed. The firm backed projects including
Aave,
Avalanche, Luna,
Worldcoin,
BlockFi, Deribit, According to a January 2021
SEC filing, Three Arrows owned almost 39 million units of Grayscale Bitcoin Trust (GBTC) at the end of 2020. The firm invested approximately $200 million in
LUNA tokens in February 2022. In April 2022
Bloomberg reported that Three Arrows was planning to move its headquarters to
Dubai from Singapore. However, on June 24, 2022, Dubai's regulator confirmed that Three Arrows was not registered with the
Dubai Financial Services Authority. Cryptocurrencies experienced broad declines in the first half of 2022, with most tokens losing more than 50% of their market valuation. LUNA, in which Three Arrows had invested and Su Zhu actively promoted on Twitter, collapsed to near zero in May 2022. The spread between Grayscale GBTC trust unit prices and spot Bitcoin prices widened throughout 2021 and 2022, with the trust units trading at a 34% discount to the trust NAV on 17 June 2022.
Licensing and regulatory issues A class action,
Patterson v. TerraForm Labs Pte Ltd. et al., was filed against Three Arrows and others in the
United States District Court for the Northern District of California on 17 June 2022. This case has since been dismissed. On 30 June 2022, the
Monetary Authority of Singapore (MAS) said it had reprimanded Three Arrows for breaching its allowed threshold of having no more than $250 million
Singapore dollars in
assets under management, a condition of its August 2013 fund management company registration. Three Arrows was further reprimanded for providing false or misleading information to MAS, and failing to notify MAS of changes to directorships or shareholdings.
Liquidation On 16 June 2022, the
Financial Times reported that Three Arrows had failed to meet its
margin calls. On 22 June,
The Wall Street Journal reported that Three Arrows had failed to repay money lent from cryptocurrency broker
Voyager Digital. On 27 June 2022, Voyager Digital issued a notice of default against Three Arrows for failing to make the required payments on a
Bitcoin and
USD Coin loan worth more than $665 million. On the same day, a court in the
British Virgin Islands ordered the liquidation of Three Arrows Capital, overseen by
Teneo. The Joint Liquidators are Russell Crumpler and Christopher Farmer, both Senior Managing Directors of Teneo. On 2 July 2022, Three Arrows filed for
Chapter 15 bankruptcy to protect its US assets from creditors. The firm's CEO, Stephen Ehrlich, attributed the decision in part due to Three Arrows' inability to pay back its loan from Voyager.
Genesis Trading's CEO Michael Moro announced on Twitter that Genesis Trading had incurred substantial losses from loans to Three Arrows and that its parent firm
Digital Currency Group has assumed certain liabilities of Genesis related to Three Arrows to ensure adequate operating capital. The company's collapse is believed to be partially responsible for the bankruptcy and failure of the crypto lender Voyager Digital and layoffs at
Blockchain.com.
FTX founder and CEO
Sam Bankman-Fried blamed the company for causing a
ripple effect that caused the bankruptcy of other crypto firms or led those firms to freeze assets during the 2022 cryptocurrency crash. Three Arrows Capital owes 27 creditors a total of US$3.5 billion. In an interview with Bloomberg held at an "undisclosed location" in July 2022, Zhu and Davies remarked that they plan to move to the
United Arab Emirates, a country that does not have extradition agreements with either Singapore or the United States. According to the
New York Times, during the June 2022 liquidation process, Zhu and Davies were in
Bali, where Zhu tried surfing, and Davies dabbled in painting. Since 2022, Zhu and his family relocated to Singapore, where they lived in a "good-class bungalow" with a "permaculture farm — an elaborate system of lakes and gardens meant to replicate self-sustaining ecosystems in nature. It's home to ducks, chickens and numerous types of dragonflies."
Arrest of Su Zhu In late September 2023, Zhu was arrested at
Changi Airport in
Singapore, while trying to leave the country. Zhu was arrested pursuant to committal orders which sentenced him to four months in prison for failing to cooperate with the company's liquidators. Davies' location remained unknown, In June 2023, Open Exchange began offering its own cryptocurrency, and Davies commented on Twitter that "I'm getting early 3AC vibes all over again... Nothing compares to the energy of a startup." ==References==