FTX vs. Three Arrows: A $1.5 Billion Bad Debt Showdown – Who’s Blacker Than the Other?
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FTX vs. Three Arrows: A $1.5 Billion Bad Debt Showdown – Who’s Blacker Than the Other?
FTX bankruptcy liquidation team rejects Three Arrows Capital's $1.53 billion claim, triggering a legal battle between the two collapsed crypto giants.
Navigating Web3 tides with focused insightsBy Oliver, Mars Finance
The war reignites! On June 23, the FTX bankruptcy liquidation team dropped a legal bombshell in court, formally rejecting Three Arrows Capital’s (3AC) massive $1.53 billion claim and demanding that the judge wipe it out entirely. This stinging rebuke instantly escalated an already years-long battle between two fallen empires—now their ghosts are once again tearing each other apart in court, opening a new chapter into one of crypto’s darkest and most chaotic "Rashomon"-style scandals.
To understand this drama, we must first meet the three key players at the table—and the bloody saga behind them worthy of a Hollywood blockbuster.
The first is SBF (Sam Bankman-Fried), the architect of the FTX empire. Before the great crash of 2022, he was a god in the crypto world, the “white knight” to countless believers. Media compared him to J.P. Morgan; politicians treated him as a VIP guest. With wild hair, shorts, and a T-shirt, he projected the image of a disheveled genius, preaching that cryptocurrency would save the world. But when his empire collapsed, people realized there was nothing beneath the knight's armor—just a fraudster sentenced to 25 years in prison.
The second pair are Su Zhu and Kyle Davies, the founders of Three Arrows Capital (3AC). They were the high-rollers of crypto, notorious for arrogance, aggression, and leveraging billions in debt. Their investment philosophy—the “super cycle theory”—was once gospel; their every word could shake markets. But when the market turned, their so-called “myth” proved to be a massive bubble. After their firm imploded, they fled across the globe: one was arrested and jailed in Singapore, the other remains in Dubai, playing the role of an exiled aristocrat under the sun.
The third is John J. Ray III—a true hardliner. His resume boasts handling Enron’s bankruptcy, one of the largest fraud cases in U.S. history. When brought in to clean up FTX’s mess, even this seasoned “king of liquidations,” accustomed to chaos, was stunned. He bluntly told the court: “In my over forty-year career, I have never seen such a complete failure of corporate controls and such a complete absence of reliable financial information.”
The story unfolds among these three. In 2022, an epic tsunami triggered by the collapse of the algorithmic stablecoin Terra/LUNA swept through the entire crypto world. 3AC, a luxury cruise liner built on leverage and debt, hit the iceberg first and sank fast. Then, months later, the seemingly indestructible FTX aircraft carrier imploded without warning, exposing a $10-billion fraud.
Now, in Delaware’s bankruptcy court, the ghosts of these two “buried” giants are locked in a bitter fight over a $1.53 billion “hell ledger.” 3AC’s liquidators claim that in its final moments, FTX acted like a bloodthirsty shark, pulling off a dirty “robbery among thieves” and illegally seizing their last assets. FTX’s liquidators fire back: You gamblers blew up your own house—now you want to rip flesh off victims who were just as gutted? Not a chance!
Is this shameless extortion or long-overdue justice? To untangle this “Rashomon,” we must return to the blood-soaked summer of 2022 and dive deep into the ocean to recover truths deliberately buried.
A Single Contract, Two Narratives
In court, both sides present completely opposing stories—like two ledgers recording the same event but telling different tales.
FTX’s version tells a story of “order and rules.”
In this account, FTX is a strict, impartial “warden of the platform.” The logic is simple: 3AC was a major client, but also a rule-breaking gambler. When the Terra/LUNA collapse triggered a market storm, 3AC’s account suffered heavy losses, breaching the margin requirements stipulated in the contract—clear default.
FTX claims it repeatedly contacted 3AC to demand additional collateral, but received no response. Worse, instead of adding funds, 3AC withdrew $18 million worth of Ethereum from its already precarious account. To FTX, this was like stealing from a burning house. Facing such misconduct, FTX says its actions were purely automated, unbiased risk management. It forcibly liquidated part of 3AC’s holdings per protocol to prevent negative balances and protect the platform and other innocent users.
With “King of Liquidations” John Ray III at the helm, FTX’s legal team appears confident. They stress to the court that FTX’s creditors should not, and cannot, become the bagholders for 3AC’s failed trades. Their narrative paints FTX as a responsible gatekeeper trying to protect everyone during the storm.
But 3AC’s version tells a story of “conspiracy and pursuit.”
This ledger begins in ruins. When 3AC’s liquidators took over, they found hard drives removed, computers missing—almost no useful records. Founders Su Zhu and Kyle were uncooperative, making the liquidation nearly impossible.
In this information vacuum, the liquidators initially filed a placeholder claim of $120 million based on scattered clues. But after navigating legal hurdles and finally obtaining massive raw transaction data from FTX, a shocking picture emerged. They discovered that within just two days—when FTX claimed 3AC defaulted and executed liquidations—assets worth $1.53 billion vanished almost entirely from 3AC’s account.
This finding changed everything. The liquidators immediately petitioned the court to increase their claim from $120 million to $1.53 billion. FTX fiercely objected, calling it baseless. Yet the presiding judge made a crucial ruling: the delay in amending the claim was largely due to FTX itself, which had repeatedly delayed providing critical data.
This judicial determination gave strong official backing to 3AC’s “conspiracy theory.” If FTX’s liquidation was truly transparent and procedurally sound, why obstruct and delay disclosure of trading data? Unless, beneath the ledger, lies something far darker.
The Core of the Fraud: Alameda’s Distress Signal
To solve this mystery, we must tear away SBF’s “white knight” mask and see what fatal internal collapse was happening inside his own empire in June 2022—even as he posed as a savior.
The key witness is Caroline Ellison, SBF’s former girlfriend and the secret CEO of his shadow empire, Alameda Research.
During SBF’s criminal trial, Ellison, testifying as a cooperating witness, revealed a bombshell: in the very same week FTX was sternly citing “insufficient margin” to justify seizing 3AC’s assets, her company Alameda had also suffered catastrophic losses from the Terra collapse, leaving a multi-billion-dollar hole in its balance sheet. Lenders swarmed like sharks smelling blood, demanding repayment.
Alameda was about to collapse. What did they do? Ellison trembled as she answered in court: “SBF instructed me to commit these crimes.” He ordered her to open a “secret backdoor” and withdraw billions from FTX customer funds to repay Alameda’s debts.
This testimony was a lightning bolt, illuminating the dark heart of the entire scandal. While FTX played the “ruthless warden,” its own “child,” Alameda, was secretly receiving infinite, illegal life support—directly siphoned from FTX customer deposits—to cover a much larger, identical shortfall.
On-chain data provides cold, hard proof.
Nansen, a blockchain analytics firm, reported that during mid-June 2022—precisely when 3AC was collapsing—Alameda sent approximately $4 billion worth of FTT tokens to FTX wallet addresses. FTT is FTX’s native exchange token, whose value is entirely propped up by FTX itself. This move was effectively using in-house printed “funny money” with little real liquidity as collateral to extract real customer cash from FTX’s vaults.
Revisiting SBF’s public statements at the time now feels like watching an Oscar-worthy performance. While secretly looting customer funds behind the scenes, he calmly told outlets like Forbes: “We’re willing to take on some bad trades if it’s necessary to stabilize the situation and protect customers.”
That noble rhetoric now rings with profound irony. He wasn’t a prudent actor stepping in to help—he was an insolvent fraudster, all show and no substance. His so-called “rescue” was merely an attempt to stop the dominoes from falling and exposing himself as the biggest hole of all.
When we piece these fragments together, 3AC founders’ claim that “SBF hunted us down” no longer sounds baseless. For FTX/Alameda, already desperate by June 2022, the motive to liquidate large, leveraged counterparties like 3AC becomes crystal clear: First, “rob and kill” to instantly seize urgently needed liquidity. Second, “make an example” by eliminating a major market risk to calm nerves and hide their own fatal wounds.
They weren’t enforcing rules—they were drowning men grabbing at others just to catch one more breath.
The Ghost of Lehman Brothers
Placing this dispute in a broader historical context, we see the pattern isn’t new. Strip away crypto’s jargon and code, and the core mirrors the 2008 financial crisis—an echo of Lehman Brothers’ downfall.
The original sin in both crises is the same: failure to segregate client assets.
This is finance’s most sacred red line. Whether traditional banks a century ago or today’s digital exchanges, client funds belong to clients—platforms have no right to touch them. Yet post-mortem investigations revealed Lehman Brothers committed “shocking failures” and “massive violations” in client asset segregation. FTX’s entire fraud system, meanwhile, was built directly on mixing customer funds with Alameda’s proprietary trading capital. This is catastrophic risk transfer—turning customers from asset owners into unsecured creditors of the platform.
The outcomes are also identical: prolonged, chaotic liquidations.
Lehman’s bankruptcy involved trillions in claims and subsidiaries worldwide, taking years to unwind. Today, FTX liquidator John Ray III faces the same nightmare: opaque corporate structures, missing financial records, hard-to-value digital assets—all slowing progress to a crawl.
History doesn’t repeat itself, but it rhymes. The FTX-3AC saga isn’t a unique “crypto” problem—it’s a classic tale of financial hubris, regulatory failure, and human greed, simply dressed in the trendy clothes of “Web3.”
No Heroes in the Endgame
So, what is the truth behind this $1.5 billion “hell ledger” dispute?
The truth is: this is not a contractual dispute about “who defaulted,” but a naked “robbery among thieves” survival game. 3AC was undoubtedly a greedy, reckless “super gambler” that burned itself to ashes—its demise was self-inflicted. But FTX was no innocent platform following the rules. It was a cancerous entity pretending to be healthy by sacrificing another player—a fraudster disguised as a rescuer.
A dying gambler met a fake savior. In that lawless, jungle-rule crypto slaughterhouse, they fought their final, bloody duel.
The Delaware court’s final judgment may set precedents for future crypto bankruptcies. But for this young industry that dreams of disrupting traditional finance, history has already rendered its verdict: when a system lacks strong regulation and transparent records, when the slogan “trustless” devolves into blind worship of a few “big shots,” there are no heroes—only predators in different forms.
Human greed and fear never change. The “dead man’s battle” between FTX and 3AC is merely another chapter in Wall Street’s century-old saga of greed—this time, rewritten in crypto slang.
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