Three Arrow Capital founders claim Terra, Grayscale’s Bitcoin Trust and staked Ethereum contributed to the collapse of the company in a long post-mortem. Today’s interview with Microsoft featured the two co-founders and co-founders, Su Zhu, and Kyle Davies.
Zhu, Davies and Davies attribute 3AC’s rapid collapse to their optimistic speculations. Zhu stated that they “positioned themselves for a market that didn’t happen.” Davies agreed: “We believed everything to its fullest.”
Zhu stated that it was not surprising that 3AC filed for bankruptcy along with Celsius, Voyager, in their long postmortem.
They weren’t alone to feel the chill from a crypto winter.
Lenders such as Vauld or BlockFi have had liquidity problems while others at the top, like Coinbase and Gemini, OpenSea and Blockchain.com, are announcing mass layoffs.
Said Zhu said: “We have our capital, our balance sheet and we take in deposits from lenders to generate yield. If we are in the business to take in deposits and then generate yield, then we end up doing similar trades.”
Su Zhu, Kyle Davies and Kyle Davies attribute 3AC’s collapse to exposure to Terra and staked Ethereum.
Zhu stated that Terra was the first case in which he didn’t see any red alerts. “What we did not realize was that Luna could fall to zero in just days, and that this would cause a credit squeeze in the industry that would place significant pressure on all our illiquid positions.”
Zhu said, “We started to get to know Do Kwon as he moved to Singapore.” We just felt that the project would do big things and had done big things. We could have seen that this was now potentially attackable in certain ways and that it had grown to be too large, too quickly.
Staked Ethereum was another popular trade among the ailing cryptocurrency companies. After the September network migration to a Proof-of-Stake consensus mechanism, each stETH can be converted into one Ethereum.
One of the side effects of Terra’s fall was that stETH began to lose its peg .
Opportunistic traders were attracted to the token by this contagion. The whole industry was able to hunt these positions.
Zhu also attributed 3AC’s collapse to exposure Grayscale’s Bitcoin Trust, (GBTC), which is an investment product for institutional buyers who want to have exposure to Bitcoin but not take on the risk of holding it. GBTC trades at a 30% discount against BTC.
Ghosting Zhu and Davies?
Su Zhu claimed that 3AC founders did not abscond with capital but rather because they felt threatened by their lives.
Zhu stated that Kyle and I were both affected by crypto’s crazy behavior. “We believe it’s in everyone’s best interest to be physically secure and keep a low profile.”
Zhu posted screenshots of a recent Advocatus Legal LLP email that was sent to Teneo’s legal representatives last Tuesday. This followed a month of silence on Twitter.
3AC’s lawyers questioned Teneo’s liquidators if they had mentioned in their July8 filing to U.S. Bankruptcy Court, the “threats physical violence” that 3AC founders and their family were facing.
3AC might be hiding from investors disgruntled, but they are no longer hiding from the general public.
It is clear that the hedge fund is over. The pair is now focusing on their creditors and moving to Dubai. This is likely due to the crypto-friendly regulatory approach.