Bloomberg interviewed the co-founders of Three Arrows Capital’s cryptocurrency hedge fund Three Arrows Capital about how their fund is crumbling. Although Su Zhu, Kyle Davies and Kyle Davies didn’t disclose whereabouts during the interview, a lawyer watching the conversation noted that the pair are located in the United Arab Emirates. Zhu said that he would “maybe” accept being called “stupid,” but people saying that he “absconded funds during the last period” is “not true.”
3AC Founders Discuss the Company’s Financial Woes
Three Arrows Capital Ltd. (Crypto hedge fund) was established by Su Zhu Kyle DaviesSince mid-June, reports indicating that the fund had been declared insolvent have been the focal point of the crypto market for several weeks.
On June 15, Zhu tweeted “We are in the process of communicating with relevant parties and fully committed to working this out,” but at the time nobody knew exactly what he meant. Further reports have shown that the crypto fund’s leveraged positions were liquidated by a number of exchanges.
Reports had also disclosed that 3AC owed Voyager Digital $655 million and days later, a British Virgin Islands court ordered that 3AC’s assets were targeted to be formally liquidated. By the first week of July, 3AC filed for bankruptcy protection, leveraging the Chapter 15 process in order to protect the company’s assets in the United States.
Despite all the turmoil surrounding the company the co-founders of 3AC were not open to discussing the situation. No one knew where they lived. Bloomberg asked the 3AC founders to interview them this week. ZhuDavies was more detailed in telling the interviewer their story.
The two acknowledged that the company’s fallout spread like a contagion across the entire crypto industry and they deny attempting to abscond funds out of the company’s coffers before the full collapse.
Zhu said the firm’s execs suffered significant personal losses in an attempt to rescue the sinking ship. “People may call us stupid,” Zhu remarked. “They may call us stupid or delusional. And, I’ll accept that. Maybe,” Zhu said. “But they’re gonna, you know, say that I absconded funds during the last period, where I actually put more of my personal money back in. That’s not true.”
Zhu, Davies and others were reported to be hiding in the woods and not cooperating on July 8. Zhu however admits that the founders were forced to hide because of death threats.
“That does not mean that we haven’t been communicating with all relevant authorities,” the 3AC co-founder told Bloomberg. “We have been communicating with them from day one,” he added. Davies stated that this whole incident was regrettable and they know that many people were unable to pay their bills. Davies commented:
It is regrettable that this whole thing happened. Numerous people were unable to pay back their losses.
3AC founders revealed that they had been extraordinarily bullish prior to the market collapse and had placed a lot of leverage trades in anticipation of a market recovery. “We positioned ourselves for a kind of market that didn’t end up happening,” Zhu said during the interview.
Interestingly, before the company’s fallout, Zhu spoke about being careful with “reasonable amounts of leverage,” and he told people that “you don’t want to overestimate your ability to do things.” Furthermore, Zhu stated at the time that crypto traders “don’t want to be blown out during a supercycle.” Speaking about the situation this week, Davies said the hedge fund did very well when the crypto cycle was good. Davies said:
Everything was important to us. We had all of our… almost all of our assets in there. The good times were the most rewarding. In the worst times, however, we often lose the most.
Zhu also discussed other crypto firms like Celsius, a crypto lender that’s been dealing with financial troubles and bankruptcy proceedings. “It’s not a surprise that Celsius, ourselves, these kind of firms, all have problems at the same time,” the 3AC executive said. “We have our own capital, we have our own balance sheet, but then we also take in deposits from these lenders, and then we generate yield on them. So if we’re in the business of taking in deposits and then generating yield, then that, you know, means we end up doing similar trades.”
Crypto Hedge Fund Founder Claims That He Lived Frugally Executives Talk Terra LUNA Fallsout
The 3AC executive also pointed to the speculation and accusations that said Zhu and Davies lived extravagant lifestyles and he said the company’s yacht was bought last year and has a “full money trail.” Zhu noted that he only had two homes in Singapore and that he biked to work regularly, living frugally.
“We were never seen in any clubs spending lots of money. We were never seen, you know, kind of driving Ferraris and Lamborghinis around,” Zhu explained. “This kind of smearing of us, I feel, is just from a classic playbook of, you know, when this stuff happens, when funds blow up, then you know, these are kind of the headlines that people like to play.”
The 3AC founders talked about how they were caught off-guard by Terra UST, LUNA and other issues during the interview with Zhu. Now, the Terra ecosystem is almost unprofitable because the Terra hedge fund has invested millions in it.
“What we failed to realize was that Luna was capable of falling to effective zero in a matter of days and that this would catalyze a credit squeeze across the industry that would put 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’s co-founder Do Kwon. Zhu concluded:
Do Kwon became a close friend of ours when he arrived in Singapore. We felt that the project would do great things and was already doing very large things. We could have observed that the project was becoming potentially attackable and had grown to be too large, way too quickly.
Terra’s Do Kwon has been criticized a great deal during the last few months as well and has been accused of a few shady acts like allegedly cashing out $2.7 billion before the blockchain’s fallout. Like Davies and Zhu, Kwon recently did an interview for the first time since Terra’s collapse and noted that he was “devastated” by the ordeal.
Kwon further stressed that there’s a big “difference between failing and fraud” as he denies he did anything wrong. Kwon did accept that he put a lot of faith into Terra’s LUNA as it grew massive and that he believed it was capable of greatness.
Let us know what you think of the Three Arrows Capital interview with Davies and Zhu. We’d love to hear your opinions on the subject.
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