Three Arrows Capital (3AC), founded by Su Zhu and Kyle Davies in 2012, was one of the most prominent crypto hedge funds, managing an estimated $10 billion in assets at its peak. The fund was known for massive directional bets on crypto — particularly leveraged long positions on BTC, ETH, and various altcoins. Zhu became a vocal crypto influencer, promoting the “supercycle” thesis that crypto markets would defy traditional bear cycles.
The thesis was wrong. When Terra collapsed in May 2022 (3AC held a significant position in LUNA), the cascading losses triggered margin calls that 3AC couldn’t meet. The fund had borrowed billions from multiple counterparties — Voyager Digital, Genesis, BlockFi, Celsius, and others — without adequate collateral. When those counterparties tried to collect, the money wasn’t there. 3AC defaulted on over $3 billion in loans.
The fund filed for bankruptcy in June 2022. Zhu and Davies initially evaded liquidators, fled to Dubai, and were uncooperative with legal proceedings. Zhu was eventually arrested in Singapore in September 2023 while attempting to leave the country. The bankruptcy proceedings revealed staggering mismanagement: no proper accounting, assets stored in personal wallets, and investments made on the basis of Twitter conviction rather than risk analysis.
3AC’s collapse was the catalyst for the 2022 crypto credit crisis. Its defaults cascaded through its lenders — Voyager, Celsius, and Genesis all filed for bankruptcy in the months that followed, each citing 3AC exposure as a contributing factor. Tens of billions in customer funds were frozen or lost. The lesson was clear: crypto’s “decentralized” ecosystem had built a deeply interconnected web of credit relationships, and when the biggest node failed, the entire network shook. 3AC proved that crypto was not immune to the systemic risks it was supposed to eliminate.
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