Founder of Crypto Pragmatist: Some thoughts on the 3AC legal documents
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Founder of Crypto Pragmatist: Some thoughts on the 3AC legal documents
It all ended when the founder disappeared from the map.
Navigating Web3 tides with focused insightsWritten by: Jack Niewold, Founder of Crypto Pragmatist
Translated by: TechFlow intern
Three Arrows Capital (3AC) was once one of the largest cryptocurrency hedge funds, managing over $10 billion at its peak—until it all unraveled when its founders vanished. Today, a 1,000-page legal filing has been released, shedding new light on the case. I’ve gone through it—here are some key takeaways:
Recap: After executing a series of large directional trades (GBTC, LUNA, stETH) and borrowing from more than 20 major institutions, Three Arrows Capital collapsed. The founders disappeared, defaulted on loans, triggering a cascade of failures across the crypto ecosystem.
Founders Su Zhu and Kyle Davies went missing, and legal proceedings have since moved forward. Today, court documents were leaked requesting that the Singapore government (where 3AC is headquartered) recognize the liquidation process and cooperate with the liquidators.
While I don’t have a legal background to fully interpret this case, I’ve pulled out several noteworthy insights from the documents.
1. Creditors
- 3AC owes over $3 billion
- The largest creditor is Genesis, with $2.3 billion in loans
- Loan defaults triggered the bankruptcies of Celsius and Voyager Digital
2. Timeline
Despite rumors of fallout following the Luna crash, most creditors seemed unaware of any issues until early June.
May 11/12: Shortly after the Luna collapse, several lenders asked about exposure to Luna—but 3AC claimed there was nothing to worry about.
May 18: Davies attempted to block loan recalls.
June 3: Interest rates on loans were increased due to market conditions.
June 7: The 3AC team marketed a new investment opportunity to investors as a way to save the firm.
June 10/11: Deribit issued a margin call to 3AC’s account “mobyDck”.
June 13: Davies tried to arrange a new loan from Genesis to cover the margin call.
June 16/17: News of 3AC’s insolvency began circulating.
3. Yachts / Homes / Potential Misconduct
Between September 20, 2021, and June 22, 2022, Su Zhu purchased two luxury homes in Singapore and a yacht not yet delivered. These purchases were likely funded with borrowed money, and the yacht was reportedly shown to lenders as proof of 3AC’s financial strength.
Suspicious movements in ETH and stablecoins appear to have occurred just before 3AC’s collapse. They paid a deposit for the yacht while defaulting on outstanding loans.
Other potential misconduct:
- Misrepresenting losses to lenders
- Falsely reporting leverage and directional market risks
- Questionable fund flows
- Failure to disclose liquidation status to shareholders/creditors
4. Business Structure
Some reports focus on TPS/Tai Ping Shan Ltd, a legal entity linked to 3AC, owned by Kelly Chen, partner of Su Zhu and Kyle Davies. It recently transferred $31 million in stablecoins through a 3AC account.
As for Su Zhu and Kyle Davies, they are technically creditors suing 3AC, claiming that 3AC owes them money. While not part of these specific documents, this claim could be relevant to the broader case.
Recently, during online liquidation proceedings, both Su Zhu and Kyle Davies muted their microphones and turned off their cameras during calls.
5. Is the Fallout Over?
It’s hard to say, but most of 3AC’s on-chain assets appear to have already been liquidated.
Wallet addresses:
- 0x82ac5170a837f6554d518c71c0590723437e6b64
- 0x4862733b5fddfd35f35ea8ccf08f5045e57388b3
3AC NFT Wallet:
- 0x2e675eeae4747c248bfddbafaa3a8a2fdddaa44b
It’s hard to imagine Genesis—a subsidiary of Digital Currency Group, which owns Grayscale (and other companies below)—willingly absorbing a $2.3 billion loss, but so far, they appear solvent.
6. What’s Left of 3AC?
Among 3AC’s illiquid investments, some equity stakes and token agreements remain—some of which may already have been sold. The only JPEG left is “Crypto Dickbutt #1462”.
Some expect mass NFT dump sales, while others speculate that the firm’s Grayscale BTC shares might be liquidated—or may already have been sold. Additionally, 3AC’s investments in various projects could negatively impact those tokens, as liquidators may sell them immediately upon unlocking.
7. How Did This Happen?
It appears lenders simply failed to conduct proper due diligence. Take Blockchain.com as an example:
- 3AC was required to “notify” if leverage exceeded 1.5x.
- Davies signed a letter confirming TAM (total asset management) exceeding $2.3 billion.
More analysis of these legal documents will surely follow—given the 1,000-page length, I couldn’t possibly digest it all. Stay tuned for further updates.
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