Three Arrows Capital (3AC or TAC) operated as a hedge fund focused on cryptocurrencies, with its headquarters located in Singapore. It was founded in 2012 by Kyle Davies and Su Zhu. The firm’s primary focus revolved around exploiting arbitrage opportunities in emerging-market foreign exchange derivatives.
They specialized in identifying undervalued derivatives on electronic platforms and maintained their positions despite requests from banks to cancel or modify the trades. Although this approach led to minimal profits, with fractions of a cent earned per dollar traded, the fund persisted with this strategy. However, in 2017, as banks gradually severed their ties with the fund in that market, the company underwent a transition towards cryptocurrencies.
The fund reported a net asset value of $18 billion. However, according to estimates from blockchain analytics company Nansen in March 2022, Three Arrows was believed to be managing approximately $10 billion in cryptocurrency assets. It’s worth noting that there is speculation surrounding the origin of a significant portion of their apparent assets, suggesting that they may have been obtained through uncollateralized borrowing from different lending platforms.
During the first half of 2022, cryptocurrencies faced significant declines, resulting in a market valuation drop of over 50% for many tokens. One such token, Luna, which Three Arrows had invested in and was actively promoted by Su Zhu on Twitter, experienced a severe collapse in May 2022, nearly reaching zero value. Additionally, the gap between the prices of Grayscale GBTC trust units and the actual spot prices of Bitcoin widened throughout 2021 and 2022. As of June 17, 2022, the trust units were traded at a 34% discount compared to the trust’s net asset value (NAV).
The Monetary Authority of Singapore (MAS) took action against Three Arrows on June 30, 2022. They reprimanded the company for breaking the rule that limited them to managing no more than $250 million in Singapore dollars in assets. This condition was set when Three Arrows registered as a fund management company in August 2013. Additionally, Three Arrows was also reprimanded for giving incorrect or deceptive information to MAS and failing to inform MAS about changes in their directors or share ownership.
Liquidation
In October 2022, news emerged that Three Arrows Capital was being investigated by two organizations: the U.S. Securities and Exchange Commission (SEC) and the Consumer Financial Protection Bureau (CFPB). The purpose of the investigation was to examine whether the company had provided accurate information to its investors regarding its financial situation. Additionally, the investigation aimed to determine if Three Arrows should have been registered with both the SEC and CFPB.
According to the Financial Times report on June 16, 2022, Three Arrows was unable to fulfill its margin calls, indicating a failure to meet financial obligations. The Wall Street Journal’s report on June 22 highlighted that Three Arrows had also failed to repay borrowed funds from cryptocurrency broker Voyager Digital. In response, Voyager Digital issued a notice of default on June 27, as Three Arrows had not made the necessary payments on a loan involving Bitcoin and USD Coin, amounting to over $665 million. On the same day, a court in the British Virgin Islands ordered the liquidation of Three Arrows Capital, signaling the company’s dissolution and closure.
On July 2, 2022, Three Arrows filed for Chapter 15 bankruptcy, which aimed to safeguard its assets in the United States from creditors. The CEO of the company, Stephen Ehrlich, stated that the decision was partially influenced by their inability to repay the loan obtained from Voyager.
Davies and Zhu, key individuals associated with Three Arrows Capital, have been uncooperative in the liquidation proceedings and were reported missing as of July 8, 2022. The firm is indebted to 27 creditors, with a combined total of $3.5 billion.
In late 2022, Zhu and Davies launched a new cryptocurrency venture called Open Exchange in Hong Kong. This move received mixed responses from financial institutions and investors. In June 2023, Open Exchange introduced its own cryptocurrency, and Davies expressed his excitement on Twitter, stating, “I’m feeling the same kind of energy as in the early days of 3AC… There’s nothing quite like the energy of a startup.”
Return as VC
Three Arrows Capital (3AC) is making waves in the crypto community once more, making a surprising return under the same name but now as a venture capital (VC) firm.
OPNX, a bankruptcy claims exchange co-founded by CoinFLEX executives and individuals associated with the now-defunct hedge fund Three Arrows Capital (3AC), revealed a new partnership on Wednesday. The new partner is 3AC Ventures, and together they will focus on investing in projects within the OPNX ecosystem that contribute to a decentralized future, as announced by OPNX on Twitter.
3AC Ventures has its own website, where they emphasize their dedication to achieving superior returns while managing risks responsibly without relying on leverage. The previous hedge fund, 3AC, experienced a significant downfall in the past year, primarily due to substantial losses incurred during the collapse of Terra’s Luna stablecoin.
OPNX, a recently launched exchange, allows users to trade debt claims on bankrupt companies such as FTX and Voyager. The exchange, founded by Kyle Davies and Su Zhu, who have experience with 3AC, went live in April. However, even during its fundraising round, when the exchange was named GTX, it faced criticism from the crypto community. Major players like Wintermute distanced themselves from GTX right away.
When OPNX revealed its collaboration with the newly established 3AC Ventures, the crypto community once again expressed skepticism and uncertainty about the partnership. Twitter influencer LilMoonLambo summed up the vibe, tweeting, “Holy sh*t, this is a real tweet.”
Despite facing skepticism, Davies remains undeterred in promoting the objectives of the new venture capital (VC) firm. According to him, 3AC Ventures is committed to offering assistance to projects that are actively developing solutions for a decentralized future. Davies expressed enthusiasm for collaborating with individuals and teams courageous enough to tackle major challenges and create innovative products.
