How did Three Arrows Capital (3AC) Fall from the Top?

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Three Arrows Capital (3AC) is a Singaporean cryptocurrency hedge fund founded in 2012 by Kyle Davies and Su Zhu. At its peak, it even backed successful projects like AAVE, Ethereum, Polkadot, Solana e...

Three Arrows Capital (3AC) is a Singaporean cryptocurrency hedge fund founded in 2012 by Kyle Davies and Su Zhu. At its peak, it even backed successful projects like AAVE, Ethereum, Polkadot, Solana etc. Now, this former giant is going bankrupt and owes US$3.5 billion to 27 companies. What brought them down? Was it Terra Luna? Axie Infinity? Or something else? Learn more about Three Arrows Capital: https://boxmining.com/three-arrows-capital-3ac-rise-and-fall-of-a-crypto-hedge-fund-giant/ Tiktok: https://www.tiktok.com/@boxmining 0:00 Introduction 0:39 Background of Three Arrows (3AC) 2:44 Collapse of Terra LUNA 5:10 Three Arrows’ excessive leverage 6:50 How Su Zhu & Kyle Davies reacted? ●▬▬▬▬▬▬▬Recommendations▬▬▬▬▬▬▬● 📖 Guides, tutorials and insights: https://boxmining.com/ Recommendation List: https://www.cryptoatlas.io/Boxmining 🌼Buy & Sell Bitcoin: https://join.swissborg.com/r/michaeOQZM 🔒Hardware Wallet: http://boxmining.co/ledger 👍🏻Brave Browser: http://boxmining.co/brave 📲Binance Exchange : http://boxmining.co/binance ●▬▬▬▬▬▬▬▬▬▬Community▬▬▬▬▬▬▬▬▬● Boxmining clips: https://www.youtube.com/channel/UCjFy3VBgOZanySOLhQu6GaQ Boxmining News Website: https://www.boxmining.com/ Telegram Group: https://t.me/BoxminingFam ●▬▬▬▬▬▬▬▬▬▬▬Social▬▬▬▬▬▬▬▬▬▬▬● Twitter: https://twitter.com/boxmining Discord: https://discord.gg/9qCpqpZm8G Facebook: https://www.facebook.com/boxmining ●▬▬▬▬▬▬▬▬▬▬Disclaimer▬▬▬▬▬▬▬▬● I'm not a professional financial adviser and you should always do your own research. I may hold the cryptocurrencies talked about in the video.

AI Analysis

So, we've all seen the recent pain in the crypto space, and one of the biggest stories is the epic downfall of Three Arrows Capital (3AC), a crypto hedge fund that once managed over $10 billion. They went from being a seemingly smart and successful entity, backing major projects like Ethereum and Solana, to filing for bankruptcy and owing a staggering $3.5 billion. It turns out, their aggressive leveraging and incredibly risky bets, especially on Terra Luna, led them down a path of no return.

Here's a breakdown of what happened:

* Who was Three Arrows Capital (3AC)?
* 3AC was a Singaporean crypto hedge fund founded in 2012 by Kyle Davies and Su Zhu.
* At its peak, it was incredibly successful, backing well-known projects such as Aave, Ethereum, Polkadot, and Solana.
* Despite their perceived intelligence and forex trading backgrounds, it seems they were actually some of the biggest "degens" (degenerate gamblers) in crypto.

* The Fed's Interest Rate Hikes and Su Zhu's Miscalculation:
* Starting in December last year, the Fed began raising interest rates to fight inflation, which usually makes risky assets like crypto less appealing.
* However, Su Zhu saw this as an opportunity to double down on crypto, using excessive leverage, which is like borrowing a lot of money to make bigger bets.
* He completely misjudged the market, as inflation remained at a 40-year high, and major protocols started failing.

* The Catastrophic Collapse of Terra Luna:
* 3AC made a huge, half-billion-dollar bet on Terra Luna, specifically its algorithmic stablecoin, UST.
* Terra Luna, founded by Do Kwon and Daniel Shin, was known for its Anchor Protocol, which offered a crazy 20% annual percentage yield (APY) for staking UST.
* 3AC staked a massive $500 million on Anchor Protocol, with Su Zhu reportedly earning $300,000 every single day.
* While staking, Su Zhu and Kyle Davies even made a down payment on a $15 million yacht, rumored to be bought with borrowed funds. They boasted it would be larger than any owned by Singapore's richest billionaires, showing their overconfidence.
* Many, including crypto veterans like Pantera Capital, were already offloading their Terra Luna stakes, but Su Zhu kept talking up its merits, which made some wonder if he was trying to offload his own holdings.
* The "death spiral" began on May 7, 2022, when over $2 billion worth of UST was unstaked and sold, causing its price to drop to 91 cents. This triggered a panic sell-off, as people rushed to get out.
* By May 13, UST had plummeted to just one cent. Since Terra Luna was a top 10 crypto by market cap, its collapse caused a huge ripple effect across the entire crypto market, demonstrating how interconnected everything is.
* 3AC was one of the first major crypto companies to fail directly because of Terra Luna, having put such a huge percentage of their funds into just one project. A whistleblower reported that 3AC's 10.9 million locked Luna, bought for $559 million, was soon worth a mere $670.

* Excessive Leverage and Bankruptcy:
After losing hundreds of millions on Terra Luna, 3AC's response was to take on more* leverage, which was a disastrous decision.
* They were unable to meet "margin calls"—demands from lenders to put up more collateral due to declining asset values—from their various lenders.
* Consequently, 3AC filed for Chapter 15 bankruptcy on July 1, 2022, in New York, which helps protect their US assets from creditors while liquidation proceeds in the British Virgin Islands, where they are based.
* Court documents show that 3AC owes a staggering $3.5 billion to 27 different companies.

* The Domino Effect:
* The collapse of 3AC created a "domino effect" throughout the crypto industry.
* For example, Voyager Digital, a publicly listed crypto brokerage firm, had lent a significant amount of money to 3AC. When 3AC couldn't pay it back, Voyager Digital suspended trading and withdrawals, and subsequently filed for bankruptcy themselves. This highlights how interconnected and vulnerable the crypto market can be when major players fail.

* The Founders' Reaction and Aftermath:
* Upon realizing the extent of their failure, Su Zhu urgently tried to sell his $34 million bungalow in Singapore, which was held in trust for his 6-year-old son. However, this wouldn't be enough to cover their massive debts.
* The founders initially seemed to be "running away" from angry creditors and liquidators. The court issued an order for them to attend, but in calls with liquidators, their videos were switched off, and audio muted, with neither of them speaking.
* After five weeks of hiding, Su Zhu and Kyle Davies finally did an interview with Bloomberg, essentially reiterating their colossal failure.
* It remains unclear if the founders will ever repay their debts.

* Key Takeaway:
* The ultimate lesson from 3AC's spectacular fall is the critical importance of self-custody in crypto. If you hold your own keys and control your own funds, no one can suddenly freeze them or lose them due to a third party's catastrophic mismanagement. It's a stark reminder that even seemingly smart and successful entities can turn $10 billion into zero due to reckless behavior and excessive leverage.

Transcript

This past two months, we have seen nothing but pain in the crypto space. Everything was on a doubtful, including massive crypto companies like 3L's Capital. It is a crypto hedge fund, and at one point, it had over $10 billion in AUM, but all of a sudden, it just failed and filed for bankruptcy. So what went wrong? I declare bankruptcy! How could the management of the company allow this to happen? In this video, I'll clear all that for you. If you find this type of content interesting, make sure...

This past two months, we have seen nothing but pain in the crypto space. Everything was on a doubtful, including massive crypto companies like 3L's Capital. It is a crypto hedge fund, and at one point, it had over $10 billion in AUM, but all of a sudden, it just failed and filed for bankruptcy. So what went wrong? I declare bankruptcy! How could the management of the company allow this to happen? In this video, I'll clear all that for you. If you find this type of content interesting, make sure you hit the subscribe button, and we'll keep the videos coming. First of all, let me give you a little bit of background of what 3L's Capital is. So 3L's Capital, or 3AC, is a Singaporean crypto hedge fund founded in 2012 by Kyle Davies and Suzu. At its peak, it even backs successful projects like Aave, Ethereum, Polkadot, and Solana, etc. It all sounds very interesting, right? Just when we thought, well, the people who are running 3AC are probably like the smartest people on earth, and they have forex trading experiences and stuff, but turns out they have the biggest degens in crypto, and definitely not a very good one. You see, ever since December last year, the Fed has been raising interest rates in the hope of combating inflation. This would send a more fearful sentiment to the market, because people would find risk on assets like crypto less appealing. But Suzu took this as an opportunity to double down on crypto with excessive leverage. Little did he know that inflation will still be 40-year record high in spite of the Fed's hawkish rate high. We're literally in the middle of war right now, and a protocol as big as Terra Luna would fail overnight. Even as crypto veterans like Pantera Capital were unloading the stake in Terra Luna, Suzu continued to talk up the merits of the algorithmic stablecoin, leading some to wonder if 3AC co-founder was in fact looking to offload its holdings. In December 2021, Suzu bragged about the feature growth prospects of Terra Luna in the tweet. In a direct quote, we are seeing some of the earliest and most ambitious idea in crypto starting to unfold. Cross-chain decentralized stablecoin backed entirely by digital native assets was the holy grail in 2016. But not everything goes as planned. Terra Luna collapsed in May this year. Billions of dollars of market captures went, poof, disappeared. Just to give you a little background, Terra Luna was founded by Do Kuan and Daniel Shin. The whole ecosystem focused on stablecoins alone. More specifically, algorithmic stablecoins, and the most infamous one is no other than US team. The main reason that you stick stablecoin on the platform called Anchor Protocol is that you can earn a crazy guaranteed return of 20% APY. And guess what? 3L's capital will stick $500 million onto the platform. Imagine earning about $300,000 every single day like Suzu did from staking a loan. What would you do? Of course I'm going to buy a yacht. According to a legal document filed by liquidators of 3L's capital, Suzu and Kyle Davies made a down payment on $15 million yacht and it speculated that the yacht was actually purchased with borrow funds. The founders, of course, have been boasting that the yacht will be larger than any owned, even by Singapore's richest billionaires. So, just when you thought you own everything in life, you have to give it all back. Turns out Algo's stablecoin is far from being stable. So far, it has only proven to be anything but stable. On 7th of May 2022, over $2 billion worth of UST was on the stake and hundreds of millions worth sold. This huge sale caused the price of UST fell to 91 cents. So, everyone be like, why is my $1 worth only 91 cents now? I better get out before I get down to zero. More and more people are selling, which also pushed UST price better down. A week later, on 13th of May 2022, the price of UST had already fallen to only one cent. This is also what you called as death spiral in Algo's stablecoins. Since Terra Luna used to be one of the top 10 cryptos by market cap, the collapse of it affected the crypto market hugely. You see, in the crypto space, everything is linked to one another. If one caught fire, it will spread rather quickly. 3L's Capital is one of the first crypto-related companies that failed because of Terra Luna, as they put such a huge percentage of the network into just one project alone. According to Fatman, a whistleblower, posted on Twitter that 3L's Capital had bought 10.9 million locked Luna for $559 million. However, it seems to collapse. That Luna token was only worth $670. So, what did Sousu do when he lost $500 million and need to pay back to his clients? Of course, he's going to take more leverage, right? Because what could go wrong? As a result of suffering losses from Terra Collapse and the crypto market downturn, 3L's Capital was unable to meet margin calls from its various lenders. So, 3AC filed for a Chapter 15 bankruptcy on 1st of July 2022 in New York. The purpose of a Chapter 15 bankruptcy is to prevent creditors from seizing a company's assets located in the US. Meanwhile, liquidation proceedings will continue in British Fagin Islands, where 3AC is based. Obviously, at this point, we have learned that 3AC just love debt and leverage and they just can't get in love with them. According to the court documents, 3AC Capitals owe $3.5 billion to 27 different companies, including Voyager Digital. Voyager Digital is a publicly listed crypto brokerage firm. They suspended trading and withdrawals shortly before the news of 3AC bankruptcy because Voyager lent so much money to 3AC, it becomes Voyager problem if the borrower is not paying the money back. That's why Voyager also filed for bankruptcy. You see the ripple effect now? Su Su realized that he failed massively, so he was urgently trying to sell his $34 million bungalow in Singapore. After 3AC filed for bankruptcy, the 31,000 square feet bungalow was purchased in December 2021 and was held on trust for his 6-year-old son. According to text messages circulating among property agents, the bungalow is being put up on a very urgent sale. Of course, this wouldn't be enough to pay their debts, so both of the founders are running away from lots of angry people. Previously, the court issued an order allowing 3L's capital liquidators to demand the pair attend court. It was also revealed that Su and Davies were incorporated with the liquidators. According to a legal document filed by 3AC's liquidators, there are soon calls with Su and Davies. However, it could not be confirmed that it was indeed them because their videos were switched off. Also, their audio was muted with neither of them speaking despite being asked questions. After 5 weeks of hiding, the founders finally came out and did an interview with Bloomberg, basically just repeating the whole thing, how they fail so massively, yada yada yada. Who knows if the founders are going to repay all their debts. We have definitely seen the domino effect with both Voyager and Celsius filed for bankruptcy. Now, everyone is just wondering if there are more dominos to fall. So far, any companies that lend money to 3AC has been given a kiss of death. So I guess the key takeaway for this video is self-custody because no one can just suddenly freeze your funds for some ridiculous reason. So ladies and gentlemen, there you go. This is how you turn $10 billion to zero. I hope you learned something today. If you did, please do me a huge favor and drop a like and subscribe to the channel. Follow me on Instagram and Twitter for more regular updates and I'll see you guys in the next one.