Three Arrows Capital: The $3.5B Fund That Gambled and Lost

The 'genius' hedge fund that leveraged its way to a $3.5 billion implosion.

Three Arrows Capital

Three Arrows Capital (3AC) was once one of the most respected crypto hedge funds in the industry. Co-founders Su Zhu and Kyle Davies were everywhere: on podcasts, at conferences, on Twitter, dropping alpha about the "supercycle" that would send crypto to the moon without looking back.

Behind the confidence was a mountain of leverage. 3AC borrowed billions from lending platforms like Genesis, BlockFi, and Voyager to make massive directional bets on crypto. When prices were rising, the leverage multiplied their returns. They looked like geniuses.

The LUNA collapse in May 2022 started the unraveling. 3AC had a massive position in LUNA that went to zero. But instead of cutting losses, they doubled down elsewhere. When BTC fell below $20,000 in June, the margin calls came. 3AC could not answer them.

The fund owed $3.5 billion to creditors with essentially zero assets remaining. Genesis, which had lent 3AC over $2 billion, was crippled. Voyager Digital, another major lender, filed for bankruptcy. BlockFi was pushed to the brink (and later taken out by FTX's collapse).

3AC's implosion created a contagion event. It was not just one fund failing. It was the interconnected web of crypto lending platforms all discovering simultaneously that their biggest borrower was bankrupt. The dominoes fell for months.

Zhu and Davies fled Singapore. They were eventually tracked down. Zhu was arrested at Singapore's Changi Airport in September 2023 and served four months for contempt of court (refusing to cooperate with liquidators). He was released and by 2025 was posting publicly on social media, commenting on crypto markets as if nothing had happened. Kyle Davies' exact whereabouts remain unknown - last reported in Bali, never arrested.

Both founders launched a new crypto exchange called OPNX, designed to trade bankruptcy claims. The audacity was breathtaking. OPNX quietly shut down.

Liquidators pursued $1.3 billion from the founders. A late-2023 report estimated creditor recovery at approximately 46%. The fund that owed $3.5 billion returned less than half.