The Rise and Fall of the Encryption Legend: The Ascendancy and Decline of Three Arrows Capital

The collapse of the once star fund in the cryptocurrency industry, Three Arrows Capital(, abbreviated as 3AC), shocked the entire crypto world. This hedge fund, founded by Su Zhu and Kyle Davies, once managed nearly $10 billion in assets, but collapsed dramatically in June 2022, triggering a series of chain reactions that led to the evaporation of over $1 trillion in market value in the crypto market.

Su Zhu and Davies are alumni of Andover High School and Columbia University. In 2012, the two raised about $1 million to establish 3AC. Initially, they focused on arbitrage trading of foreign exchange derivatives in emerging markets. With sharp market insights and bold investment strategies, 3AC quickly accumulated wealth and reputation.

With the rise of the cryptocurrency market, 3AC shifted its focus to this emerging field. They seized the opportunity during the 2018 bear market to make significant purchases and reaped substantial returns during the subsequent bull market. By the end of 2020, the assets managed by 3AC had exceeded $2.6 billion.

Su Zhu has amassed over 570,000 followers on Twitter, becoming one of the most influential opinion leaders in the encryption community. He vigorously promotes the "super cycle" theory, believing that the price of Bitcoin will continue to rise to millions of dollars. This optimistic sentiment has attracted a large number of followers and has also brought more investment opportunities to 3AC.

However, 3AC's expansion was built on a large amount of borrowing. They borrowed huge sums of money from various cryptocurrency platforms and used these funds for high-risk investments. By the end of 2021, 3AC's leverage had reached around 3 times, far exceeding the levels of traditional hedge funds.

The turning point in the fate of 3AC occurred in May 2022. That month, their heavily invested Luna project suddenly collapsed, leading to massive losses for 3AC. Subsequently, cryptocurrencies such as Bitcoin plummeted significantly, causing the value of 3AC's assets to shrink drastically.

In the face of margin call requirements, Su Zhu and Davies chose to conceal the actual situation and continued to borrow heavily from other institutions. They even attempted to pledge the same batch of assets multiple times to different institutions. When 3AC ultimately could not repay its debts, the entire encryption ecosystem was severely impacted.

The collapse of 3AC exposed the systemic risks and regulatory shortcomings that are prevalent in the encryption industry. Many institutions were too lenient in their credit assessments of 3AC and failed to detect issues in a timely manner. At the same time, 3AC's operations are also suspected of fraudulent activities and are currently under investigation by regulatory authorities.

Su Zhu and Davies are currently missing and are said to have fled to Dubai. They left behind billions of dollars in debt, as well as an unfinished super yacht. This duo, once regarded as encryption geniuses, has now become a cautionary tale for the industry.

The story of 3AC tells us that even the smartest investors can be blinded by overconfidence and greed. In the world of encryption, where effective regulation is lacking, immense wealth can vanish in the blink of an eye. This lesson is worth deep reflection for the entire industry.