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The two co-founders of the recently <\/span>bankrupt<\/span><\/a> crypto hedge fund Three Arrows Capital (3AC), Su Zhu and Kyle Davies, have broken their silence in a new interview with <\/span>Bloomberg<\/span><\/i><\/a>, published today.\u00a0<\/span><\/p>\n Zhu and Davies attribute 3AC\u2019s rapid collapse to over-optimistic speculations on their part, with Zhu saying that they<\/span> \u201cpositioned [themselves] for a kind of market that didn\u2019t end up happening.\u201d Davies echoed: \u200b\u200b\u201cWe believed in everything to the fullest.\u201d<\/span><\/p>\n In their lengthy postmortem, Zhu said it was \u201cnot a surprise\u201d that 3AC folded and filed for bankruptcy, along with Celsius<\/a> and Voyager<\/a>.\u00a0<\/span><\/p>\n They weren’t the only ones to feel the chill of a crypto winter. <\/span><\/p>\n Lenders like Vauld and BlockFi have been having <\/span>liquidity issues<\/span><\/a>, while some of the names at the top\u2014like Coinbase<\/a><\/span>, Gemini, OpenSea, and Blockchain.com announcing <\/span>mass layoffs<\/span><\/a>.\u00a0<\/span><\/p>\n Said Zhu: \u201cWe have our own capital, we have our own balance sheet, but then we also take in deposits from these lenders and then we generate yield on them. So if we\u2019re in the business of taking in deposits and then generating yield, then that, you know, means we end up doing similar trades.\u201d<\/span><\/p>\n <\/p>\n In their interview, Su Zhu and Kyle Davies attribute 3AC\u2019s collapse to over-exposure to Terra<\/a>, staked Ethereum<\/a>, and Grayscale\u2019s Bitcoin trust<\/a>.\u00a0<\/span><\/p>\n Zhu said in the case of Terra, he initially didn\u2019t see any red flags: \u201cWhat we failed to realize was that Luna was capable of falling to effective zero in a matter of days and that this would catalyze a credit squeeze across the industry that would put significant pressure on all of our illiquid positions.\u201d<\/span><\/p>\n \u201cWe began to know Do Kwon on a personal basis as he moved to Singapore,” said Zhu. “And we just felt like the project was going to do very big things, and had already done very big things. If we could have seen that, you know, that this was now like, potentially like attackable in some ways, and that it had grown too, you know, too big, too fast.\u201d<\/span><\/p>\n Another popular trade among the ailing crypto companies was staked Ethereum<\/a><\/span>, or stETH. Every stETH will in theory be redeemable for one Ethereum after the network migrates to a proof-of-stake<\/span><\/a> (PoS) consensus mechanism <\/span>in September<\/span><\/a>. <\/span><\/p>\n However, one of the knock-on effects of Terra\u2019s collapse was that stETH began to <\/span>miss its peg<\/span><\/a>.\u00a0<\/span><\/p>\n <\/p>\n This attracted opportunistic traders to bet against the token: \u201cBecause Luna just happened, it was very much a contagion where people were like, ‘OK, are there people who are also leveraged long staked Ether versus Ether who will get liquidated as the market goes down?’ So the whole industry kind of effectively hunted these positions, thinking that, you know, that because it could be hunted essentially.\u201d<\/span><\/p>\n Zhu also attributed 3AC\u2019s collapse to exposure to Grayscale\u2019s Bitcoin Trust (GBTC), an investment product for institutional investors who want exposure to Bitcoin without the risks of directly holding it. GBTC is currently trading at a <\/span>30% discount<\/span><\/a> to BTC.<\/span><\/p>\n Su Zhu alleged that the reason 3AC\u2019s founders have remained virtually silent for the last five weeks was not because they were absconding with capital, but because they felt their very lives were threatened.\u00a0<\/span><\/p>\n \u201cFor Kyle and I, there\u2019s so many crazy people in crypto that kind of made death threats or all this kind of noise,\u201d Zhu said. \u201cWe feel that it\u2019s just the interest for everyone if we can be physically secured and keep a low profile.\u201d\u00a0<\/span><\/p>\n <\/p>\n Last Tuesday, Zhu broke his month-long Twitter silence to post screenshots of a recent email from Advocatus Legal LLP, the firm hired by 3AC, that was sent to legal representatives of the firm\u2019s liquidators, Teneo.\u00a0<\/span><\/p>\n In the letter, 3AC\u2019s lawyers asked the liquidators at Teneo whether they mentioned in their <\/span>July 8 filing<\/span><\/a> to the U.S. Bankruptcy Court the \u201cthreats of physical violence\u201d that the 3AC founders and their families were receiving.<\/span><\/p>\n So 3AC may be hiding from disgruntled investors, but they\u2019re no longer hiding from the public. <\/span><\/p>\n There is no doubt that this is the end of the road for the hedge fund; for now, though, the pair are focused on meeting their obligations to creditors, and eventually, moving to Dubai, most likely due to its crypto-friendly regulatory approach<\/a>.\u00a0<\/span><\/p>\nThe trades that sank the ship<\/span><\/h2>\n
Zhu and Davies ghosting?<\/span><\/h2>\n
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