This week, the two co-founders of troubled cryptocurrency hedge fund Three Arrows Capital spoke to Bloomberg about their fund collapsing at the seams. Co-founders Su Zhu and Kyle Davies did not reveal their whereabouts, but a lawyer monitoring interviews noted that the couple was based in the United Arab Emirates. Zhu said he would “probably” accept being called “stupid”, but it was “incorrect” for people to say he “absconded with funds in the last period”.
3AC founders discuss company’s financial woes
Three Arrows Capital Ltd (3AC), a crypto hedge fund founded by Su Zhu and Kyle Davies, has been the focus of the crypto industry over the past few weeks since reports surfaced in mid-June that the fund was insolvent.
On June 15, Zhu tweeted, “We are communicating with relevant parties and making every effort to resolve the matter,” but no one knew exactly what he meant at the time. Further reports revealed that leveraged positions in crypto funds had been liquidated by multiple exchanges.
The report also revealed that 3AC owed Voyager Digital $655 million, days after a British Virgin Islands court ordered a formal liquidation of 3AC’s assets. 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 the chaos surrounding the company, the two co-founders have been silent about the situation and no one has identified the two. This week, the 3AC co-founders decided to do an interview with Bloomberg, and Zhu and Davis offered a more descriptive account of the interviewer’s story.
The duo acknowledged that the company’s fallout spread like a contagion across the crypto industry, and they denied trying to abscond from the company’s coffers before the full collapse.
Zhu said the company’s executives suffered significant personal losses while trying to rescue the wreck. “People might call us stupid,” Zhu said. “They might call us stupid or delusional. And, I’ll take it. Maybe,” Zhu said. “But they would, you know, say I absconded with funds in the last period, when I actually put more of my personal money into it. That’s not true.”
On July 8, reports indicated that Zhu and Davis were in hiding, allegedly not cooperating. However, Zhu admitted that the founder was forced into hiding after receiving death threats.
“That doesn’t mean we’re not communicating with all relevant authorities,” the 3AC co-founder told Bloomberg. “We’ve been communicating with them from day one,” he added. Davis stressed that the whole ordeal was unfortunate, and both knew that many people lost their funds. Davis commented:
The whole situation is regrettable. Many people lost a lot of money.
The co-founder of 3AC explained that before the crash, they were very bullish and had placed many trades on leverage in anticipation of a market turnaround. “We positioned ourselves in a market that didn’t happen in the end,” Zhu said in the interview.
Interestingly, before the company was impacted, Zhu spoke of using a “reasonable amount of leverage” sparingly, telling people that “you don’t want to overestimate your ability to do things”. Additionally, Zhu said at the time that cryptocurrency traders “don’t want to be blown up in a supercycle.” Talking about this week, Davis said that when the cryptocurrency cycle is good, hedge funds do very well. Davis said:
We totally believe in everything. All of our…almost all of our assets are there. And then in the good times, we did our best. And then in bad times, we lose the most.
Zhu also discussed other cryptocurrency companies such as Celsius, a cryptocurrency lender that has been dealing with financial issues and bankruptcy proceedings. “It’s not surprising that Celsius, ourselves, these kinds of companies have problems at the same time,” the 3AC executive said. “We have our own capital, we have our own balance sheet, but we also take deposits from these lenders, and we generate income for them. So if we’re in the business of taking deposits and then generating income, then you know, this Means we end up with a similar deal.”
Crypto Hedge Fund Founder Claims He Lives a Frugal Life, Execs Discuss Terra LUNA Fallout
The 3AC executive also pointed to speculation and accusations that Zhu and Davis lived a lavish lifestyle, saying the company’s yacht was purchased last year and had a “full funding track”. Zhu points out that he only has two houses in Singapore, and that he often cycles to work and lives a frugal life.
“We’ve never spent a lot of money at any club. You know, we’ve never seen a Ferrari and a Lamborghini,” Zhu explained. “I think this smearing of us just comes from a classic playbook, you know, when this sort of thing happens, when the money explodes, you know, these are the headlines that people love to play with.”
Towards the end of our interview with Zhu and Davis, the 3AC co-founders discuss how they were caught off guard by the Terra UST and LUNA blowouts. Hedge funds have invested millions of dollars in the Terra ecosystem, and these funds are now almost worthless.
“What we didn’t realize was that Luna was able to drop to effectively zero within a few days, which would trigger a credit crunch across the industry, which would put a huge strain on all of our illiquid positions,” Zhu said. The 3AC co-founder added that the team may have liked Terra co-founder Do Kwon too much. Zhu concluded:
When Do Kwon moved to Singapore, we started getting to know him personally. We just felt like this project was going to do very big things and have done very big things. If we can see, you know, this is now like, in some ways it might be under attack, and it’s also growing, you know, too big, too fast.
Terra’s Do Kwon has also received a lot of criticism over the past few months and has been accused of some improprieties, such as allegedly cashing out $2.7 billion before blockchain impact. Like Davis and Zhu, Kwon recently gave his first interview since Terra’s collapse, noting that he was “shocked” by the ordeal.
Kwon further emphasized that “there is a big difference between failure and fraud” as he denies he has done anything wrong. Kwon does embrace his huge faith in Terra’s LUNA as it gets huge and he believes it can be great.
What do you think of the interviews with Davies and Zhu from Three Arrows Capital? Let us know what you think about this topic in the comments section below.
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