Ugly. Three Arrows Capital (3AC) Liquidation Document Revealed

Three Arrows Capital (3AC) is shouldering part of the blame for the crypto contagion that has wreaked havoc on digital asset markets. The crypto hedge fund stumbled, and then imploded when crypto valuations rapidly declined – most dramatically represented by the collapse of TerraUSD/LUNA, an algorithmic stablecoin that ended up being not very stable. The liquidation document for 3AC was recently revealed online and provides a detailed outline of the firm’s activity leading up to insolvency.

Currently, 3AC is going through the liquidation process in the British Virgin Isles but many questions remain. There have been reports that the founders have disappeared, or at least have been non-cooperative. Meanwhile, the securities regulator in Singapore, the Monetary Authority of Singapore, is allegedly investigating the hedge fund as it was reported to be handling trading activities in Singapore. The wind-down process is being handled in BVI as it is registered as a Professional Fund in the country.

The document indicates that holdings in TerraUSD/LUNA teed off 3ACs demise as in May 2021, 3AC held $600 million in value of these digital assets. Additionally, 3AC apparently owned  a $1.2 billion of Grayscale Bitcoin Trust that declined in value to $550 million. 3AC took out a $650 million loan from Voyager Digital that went into default, causing the firm to file for bankruptcy protection, as the domino effect took over.

There is a lot to sort through in the document. Rather concerning, is the statement that:

“On 14 June 2022, the Company transferred approximately US$30.7 million in USDC and US$900,000 in USDT (with USDC and USDT being stablecoins whose values are pegged to the US Dollar) to the wallet of Tai Ping Shan Limited, a Cayman Islands company indirectly owned by Su Zhu and Kyle Davies’s partner, Kelly Kaili Chen. It was unclear where those funds subsequently went.”


“The Company withdrew a total of 14,900 Ether (a type of cryptocurrency token) (equating to approximately US$17 million) from a cryptocurrency exchange, FTX. The Company then transferred 4,790 Ether to another wallet held by the Company and transferred, 10,140 Ether to a wallet tagged as “Fund 0x3BA”. 10,140 Ether was then transferred from “Fund 0x3BA” to a wallet held with Aave, an open source liquidity protocol that allows users to lend and borrow cryptocurrency. It was unclear why the Company continued to trade cryptocurrency rather than respond to margin calls from its lenders.”

As well:

“On 16 June 2022, the Company transferred approximately US$10.9 million in USDT to an unknown address, which, prior to that transfer, had not received or transferred any funds in the past 2 years. The USDT was then transferred out 6 minutes later, to another unknown address.”

The document states that it is possible that some of these transactions may have been due to margin calls on loans but transparency is not sufficient to draw final conclusions.

The filing shares that 3AC founders Su Zhu and Kyle Davies allegedly made a down payment on a $50 million yacht – to be delivered within two months.

The managers of the liquidation process request that the founders of the company “should not be allowed to deal with what may be assets of the company” as it is not clear how assets are being managed.

The document is over 1ooo pages long and while eye-opening, and shocking (still sorting through it), it raises many questions – perhaps more than it answers.

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