This week the two co-founders of the embattled cryptocurrency hedge fund Three Arrows Capital spoke to Bloomberg about their fund crumbling at the seams. The co-founders Su Zhu and Kyle Davies did not disclose their whereabouts, but a lawyer who monitored the interview noted the duo is 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.”
The crypto hedge fund Three Arrows Capital Ltd. (3AC) founded by Su Zhu and Kyle Davies has been a focal point in the crypto industry for the last couple of weeks since reports noted in mid-June that the fund was insolvent.
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.
Amid all the chaos surrounding the company, the two co-founders had not been talkative about the situation and no one was sure where the duo was located. This week, the 3AC co-founders decided to do an interview with Bloomberg, and Zhu and Davies gave the interviewer a more descriptive account of 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.”
On July 8, reports noted that Zhu and Davies were in hiding and allegedly not being cooperative. Zhu, however, admits the founders have been forced into hiding because they were getting 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 stressed that the entire ordeal was unfortunate and the duo is aware a lot of people lost funds. Davies remarked:
The whole situation is regrettable. Many people lost a lot of money.
The 3AC co-founders explained that prior to the collapse they were extraordinarily bullish and had put a number of trades on leverage expecting a market turnaround. “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:
We believed in everything to the fullest. We had all of our… almost all of our assets in there. And then in the good times we did the best. And then in the bad times we lost 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.”
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.”
Toward the end of the interview with Zhu and Davies, the 3AC co-founders discussed how they were taken off guard by the Terra UST and LUNA blowout. The hedge fund invested millions of dollars into the Terra ecosystem and now those funds are now near worthless.
“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:
We began to know Do Kwon on a personal basis as he moved to Singapore. And we just felt like the project was going to do very big things, and had already done very big things. If we could have seen that, you know, that this was now like, potentially like attackable in some ways, and that it had grown too, you know, too big, too fast.
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.
What do you think about the interview with Davies and Zhu from Three Arrows Capital? Let us know what you think about this subject in the comments section below.