A Decade of Ups and Downs for Crypto Maniacs: The Rise and Fall of Three Arrows Capital

Su Zhu and Kyle Davies met in 2005 at Phillips College in Andover, Massachusetts. Both of them come from ordinary families and are typical top students on campus. Su Zhu is known for his perfect GPA and excellent AP scores, while Davies excels in Japanese.

The two went to Columbia University, majored in math and joined the squash team. After graduating, Su Zhu worked in derivatives trading at Credit Suisse in Tokyo, and Davies then joined as an intern. After the 2008 financial crisis, Su Zhu moved to Flow Traders, a Singapore-based high-frequency trading firm, where he mastered the art of arbitrage trading, focusing on ETF trading.

In 2012, 25-year-old Su Zhu and 24-year-old Davies decided to start their own hedge fund, Three Arrows Capital(3AC). They raised about $1 million in seed funding and quickly doubled that money. Initially focused on emerging market FX derivatives arbitrage, Su Zhu draws on her experience at Flow Traders to capture opportunities for price mismatches.

By 2017, 3AC shifted its focus to the cryptocurrency market. After the Bitcoin crash in 2018, 3AC seized the opportunity to buy aggressively, laying the foundation for the subsequent surge. Su Zhu actively promoted the "crypto supercycle" theory on Twitter, which attracted a large following.

As the crypto market soared in 2020-2021, 3AC's assets swelled rapidly, allegedly reaching $10 billion at one point. Su Zhu and Davies began to live a life of luxury, buying mansions and superyachts. However, they also borrowed heavily and leveraged up to 3 times.

! New York Magazine Feature丨Genius or Madman? Three Arrows Capital's 10-year ups and downs of two crypto madmen

In May 2022, the collapse of Terra/Luna became the trigger. 3AC's $5 billion investment in Luna was almost zero, and then it fell into a broken capital chain. In mid-June, 3AC was unable to repay the loan, and Su Zhu and Davies evaporated.

On July 1, 3AC filed for bankruptcy protection. Its debt is estimated to be in the billions of dollars. The collapse triggered a domino effect in the crypto market, causing digital assets such as Bitcoin to plummet by more than 70% and more than $1 trillion in market value to evaporate.

The pair of erstwhile "geniuses" now face fraud charges and regulatory investigations. Their experiences reveal the speculative nature of the crypto industry, as well as the disastrous consequences that can come with excessive leverage. The fall of 3AC marked the end of an era of crypto mania and a wake-up call for the entire industry.

! New York Magazine Feature丨Genius or Madman? 10 Years of Ups and Downs of Two Crypto Maniacs at Three Arrows Capital