Collapse of Three Arrows Capital (3AC): The founders break the silence
Until then, the founders of the cryptocurrency investment fund Three Arrows Capital (3AC) spoke with little communication. Faced with death threats, Su Zhu and Kyle Davies explain that they have chosen to remain hidden. They then returned to the reasons that led to the collapse of their company, which was one of the benchmarks among blockchain institutions.
The founders of 3AC describe their vision of the situation
Since the beginning of the troubles of the cryptocurrency mutual fund Capital of the Three Arrows (3AC), its founders Su Zhu and Kyle Davies were particularly silent. The latter gave an interview to Bloomberg to try to explain the reasons for their failure.
After weeks of hiding, the disgraced founders of Three Arrows Capital are finally talking about the spectacular implosion of their once-high-flying hedge fund https://t.co/UMHKPMG7D9
— Bloomberg (@business) July 23, 2022
Su Zhu explains that first death threats forced her to hide. However, he insists that he and Kyle Davies have been cooperating with the relevant authorities from day one following the fund’s liquidation. Rumors have surfaced about this as well the founders of 3AC “left with the cash register”, the opposite seems to be the case:
“People can call us stupid […] or delusions. And I will accept that. Maybe. But you know, they’re going to say that I’ve been running away with the money lately when I’ve actually handed over my personal money. »
The two partners have refused to reveal their current whereaboutsbut according to one of the lawyers present during the call, the final destination would be the United Arab Emirates.
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Terra, the trigger
If the numbers vary from one source to another, Three Arrows Capital owes its creditors $3.5 billion. The current situation arises from an excess of optimism by Su Zhu and Kyle Davies.
The latter have indeed bet on one Cryptocurrency super cycle. This caused them to borrow large sums of money so that if their scenario had come true, they would have won big. The fact is that the fall in prices amplified the losses.
The collapse of Terra (LUNA) therefore ended the fund’s momentum:
“What we didn’t realize was that Luna could go to zero in a matter of days, which would create a credit crunch in the industry that would put significant pressure on all of our illiquid positions. »
The founders of 3AC have personally meets Do Kwon in Singapore. They realize they didn’t see the fall of this giant that had grown “too big, too fast” coming.
Shortly after the LUNA episode, the ecosystem had to overcome the loss of stETH’s binding to ETH. Faced with margin calls and the illiquidity of their positions, players like Celsius were forced to do so sell their stETH at a lossthereby exacerbating the situation by increasing the pressure 3AC was under.
Still, lenders remain satisfied with the fund’s financial condition, according to Su Zhu. So they were able keep borrowing From Investors and Other Liquidity Providers to Bitcoin (BTC) Last Major Downtrend Below $20,000:
“You know, I just think that during that time we kept working as if nothing happened. But yes, after that day, when […] Bitcoin fell from $30,000 to $20,000 […] it was very painful for us. And that was it, in the end it was kind of a nail in the coffin. »
The GBTC problem
Another factor of illiquidity in 3AC’s positions is a product of gray levels : the Grayscale Bitcoin Trust (GBTC). Before the introduction of Bitcoin ETFs, GBTC was one of the few regulated products in the United States that traded the asset. His popularity prompted him to act for a price higher than BTC.
Grayscale then allowed institutions to provide him with BTC in exchange for GBTC, generating value for lenders. This is how 3AC largest holders of GBTC with a position of over a billion dollars.
This operation should ensure a profit for the mutual fund due to the price difference between the underlying asset and the derivative. But the counterpart to this operation is that the GBTC had to be banned for six months. As many looked to take advantage of the arbitrage opportunity, the price gap reversed, causing large losses for Three Arrows Capital, which suffered from frozen positions.
In the face of all this cascade of problems and threats, the founders believe that they have every interest in remaining inconspicuous for the moment. They also indicate that the emphasis is on the recovery process before considering anything else for the future.
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Source: Bloomberg
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I shyly discovered the world of blockchain at the end of 2018 on my search for financial freedom. Initially investing moderately, it was only two years later that I dared to risk everything in the movement that was emerging at the time. In 2021 I will then dedicate myself to further training in order to acquire more knowledge and seriousness. As I often say, I still have a billion things to learn. And what I know, I want to share with you.
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