This week, the two co-founders of cryptocurrency hedge fund Three Arrows Capital spoke to Bloomberg about how their fund is bursting at the seams. Co-founders Su Zhu and Kyle Davis did not reveal their whereabouts, but a lawyer who oversaw the interview noted that the duo is in the United Arab Emirates. Zhu said he would “maybe” agree to be called “stupid”, but people saying he “hid funds during the last period” are “not true.”
3AC founders discuss the company’s financial problems
Cryptocurrency hedge fund Three Arrows Capital Ltd. (3AC) founded Su Zhu as well as Kyle Davis has been in the spotlight of the crypto industry for the past couple of weeks since reports emerged in mid-June that the fund was insolvent.
June 15 Zhu tweeted “We are in the process of communicating with the relevant parties and are fully committed to resolving this issue”, but at the time no one knew exactly what he meant. Further reports showed that leveraged crypto fund positions were liquidated by a number of exchanges.
Reports also suggested that 3AC owed Voyager Digital $655 million, and a few days later a British Virgin Islands court ordered that 3AC’s assets be formally liquidated. By the first week of July, 3AC had filed for bankruptcy protection using the Chapter 15 process to protect the company’s assets in the United States.
Amid all the chaos surrounding the company, the two co-founders didn’t talk about the situation and no one was sure where the duo was. The 3AC co-founders decided to interview Bloomberg this week, and Zhu and Davis gave the interviewer a more descriptive account of their history.
The two acknowledged that the effects of the company have spread like a contagion throughout the crypto industry, and they deny attempts to hide from the funds from the company’s treasury until the collapse.
Zhu said the firm’s executives suffered significant personal losses trying to save the sinking ship. “People may call us stupid,” Zhu remarked. “They might call us stupid or delusional. And I will accept it. Possibly,” Zhu said. “But they will, you know, say that I hid the funds during the last period, when I actually put back more of my personal money. It is not true”.
On 8 July, reports noted that Zhu and Davis went into hiding and allegedly did not cooperate. Zhu, however, admits that the founders were forced into hiding because they received death threats.
“This does not mean that we have not communicated with all relevant authorities,” the 3AC co-founder told Bloomberg. “We have been in contact with them since day one,” he added. Davis emphasized that the whole ordeal was a failure and the duo know that many people have lost funds. Davis remarked:
The whole situation is regrettable. Many people have lost a lot of money.
The 3AC co-founders explained that prior to the crash, they were extremely optimistic and had a number of leveraged trades in anticipation of a market reversal. “We positioned ourselves for a market that ultimately never came,” Zhu said during an interview.
Interestingly, before the collapse of Zhu’s company spoke about being careful with “a reasonable amount of leverage” and he told people that “you don’t want to overestimate your ability to do things.” Additionally, Zhu stated at the time that crypto traders “don’t want to go bust during a super cycle.” Speaking about the situation this week, Davis said that the hedge fund performed very well when the crypto cycle was good. Davis said:
We believed in everything to the end. All of our… almost all of our assets were there. And then in good times we did our best. And then in bad times we lost the most.
Zhu also discussed other crypto firms such as Celsius, a crypto lender that has faced financial problems and bankruptcy proceedings. “It’s no surprise that Celsius and we and similar firms are having problems at the same time,” the 3AC chief said. “We have our own capital, we have our own balance sheet, but then we also take deposits from these creditors, and then generate income from them. So if we’re in the business of taking deposits and then generating income, you know, that means we end up making similar deals.”
Crypto Hedge Fund Founder Claims He Lived Frugally, Executives Discuss Terra LUNA Fallout
The 3AC executive also pointed to rumors and allegations that Zhu and Davis were living extravagant lifestyles and said the company’s yacht was purchased last year and has a “full cash trail.” Zhu noted that he only has two houses in Singapore and that he regularly cycles to work while living modestly.
“We have never been seen in any club spending a lot of money. You know, we were never seen driving a Ferrari or a Lamborghini,” Zhu explained. “This vilification of us, I feel, is just out of a classic play, you know, when it happens, when the money explodes, then you know, it’s the kind of headlines that people love to play.”
Near the end of the interview with Zhu and Davis, the 3AC co-founders revealed how they were caught off guard by the explosion of Terra UST and LUNA. The hedge fund has invested millions of dollars in the Terra ecosystem, and now these funds are worth almost nothing.
“What we didn’t realize was that Luna could drop to virtual zero in a matter of days and that this would be the catalyst for an industry credit crunch, putting significant pressure on all of our illiquid positions,” Zhu said. The 3AC co-founder added that the team may have been too fond of Terra co-founder Do Kwon. Zhu concluded:
We met Do Kwon personally when he moved to Singapore. And we just felt that the project was going to do very big things, and has already done very big things. If we could see it, you know that now it looked like a potential attack in a way, and that it also grew, you know, too big, too fast.
Terra’s Do Kwon has also come under heavy criticism over the past few months and has been accused of several questionable acts, such as allegedly cashing out $2.7 billion before the blockchain fell. Like Davis and Zhu, Kwon recently sat down for an interview, for the first time since the collapse of Terra, and remarked that he was “devastated” by the ordeal.
Kwon also emphasized that there is a big “difference between failure and fraud” as he denies doing anything wrong. Kwon did admit that he had great faith in Terra’s LUNA as it grew massive, and that he believed it was capable of greatness.
What do you think of the interview with Davis and Zhu of Three Arrows Capital? Let us know what you think about it in the comments section below.
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