Three Arrows Capital Co-founders Reveal Three Reasons Behind The Firm’s Collapse

The Crypto industry witnessed the fall of several leading crypto firms this crypto winter. Three Arrows Capital or 3AC is one such crypto entity. 3AC went bankrupt due to a significant sell-off in cryptocurrencies in June. A few days ago, Teneo, the firm’s liquidators, reported that Kyle Davies and Zhu Su, the 3AC co-founders, are nowhere to be found. But, the co-founders have come forward to clear things up.

3AC founders also reveal why they were silent for so long. Contrary to what most people believe, it isn’t because they intended to vanish all the funds but because they were repeatedly threatened for life. On July 19, Zhu took to Twitter to upload screenshots containing emails sent to Teneo, liquidators of the firm, from Advocatus Legal LLP, the firm hired by 3AC. The letter inquired Teneo asking if they mentioned “threats of physical violence” to the 3AC co-founders and their families, in their filing to the U.S. Bankruptcy Court on July 8.

Speaking on the dramatic collapse of their firm, the co-founders said that they were “over-optimistic” towards their project. “We believed in everything to the fullest,” said the founders. However, Zhu said the collapse didn’t come as a surprise to them since they weren’t the only ones to suffer the destruction caused by ‘crypto winter.’ They owe the collapse of their firm to three factors: over-exposure to Terra, Grayscale’s Bitcoin Trust, and staked Ethereum. Zhu further said that although they have their own funds and balance sheets, they take deposits from investors and generate yield on them, hence end up doing similar trades.

Further analyzing the Terra factor, Zhu explained where they went wrong. The founder said they didn’t see LUNA practically dropping to zero in a matter of a few days. As a result, putting pressure on illiquid positions. Moreover, their ties with Terraform CEO Do Kwon have strengthened. They believed in the project and that it was up to some big things.

One of the effects of Terra’s collapse was stETH losing its peg. In September, during the transition to the proof-of-stake mechanism, Stacked Ethereum will be redeemable for one Ethereum. This shifted people’s attention to individuals who also leveraged long-staked Ether versus Ether that will liquidate when the market goes down. Leadinto the entire industry began seeking these positions since they could be “hunted essentially.”