the founders break the silence

Uncommunicative until then, the founders of the cryptocurrency investment fund Three Arrows Capital (3AC) took the floor. Faced with death threats, Su Zhu and Kyle Davies explain that they have chosen to remain in hiding. They then went back to the reasons that led to the collapse of their company, which was one of the benchmarks among blockchain institutions.

The founders of 3AC give their vision of the situation

Since the beginning of the difficulties of the cryptocurrency investment fund Three capital arrows (3AC), its founders Su Zhu and Kyle Davies were particularly silent. The latter gave an interview to Bloomberg to try to explain the reasons for their failure.

Su Zhu first explains it death threats forced them to remain hidden. However, he insists that he and Kyle Davies have been cooperating since day one with the relevant authorities following the liquidation of the fund. Rumors have also emerged the founders of 3AC would have “gone with the cash register”, it seems that it would be quite the opposite:

“People can call us stupid […] or delusions. And I will accept it. Perhaps. But you know, they will say that I ran away with the funds during the last period, when I actually handed over my personal money. “

The two partners have refused to disclose their current locationbut according to one of the lawyers present during the phone call, the United Arab Emirates would be the final destination.

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Earth, the trigger

While the figures vary from source to source, Three Arrows Capital owes $ 3.5 billion to its creditors. The current situation stems from an excess of optimism by Su Zhu and Kyle Davies.

The latter have in fact bet on a super cycle of cryptocurrencies. This led them to borrow large sums so that if their scenario came true, they would win big. The fact is that the drop in prices has amplified the losses.

The collapse of the Earth (LUNA) has therefore put an end to the dynamics of the fund:

“What we didn’t realize was that Luna was able to hit zero within days and that would catalyze a credit crunch in the industry, which would put significant pressure on all of our illiquid positions. “

The founders of 3AC have personally meets Do Kwon in Singapore. They acknowledge that they have not seen the fall of this giant that had become “too big, too fast”.

Shortly after the LUNA episode, the ecosystem had to overcome the loss of the stETH peg on ETH. Faced with margin calls and the illiquidity of their positions, players like Celsius have been forced to do so sell their stETHs at a lossthus aggravating the situation by increasing the pressure to which the 3AC was subjected.

However, according to Su Zhu, lenders remained comfortable with the fund’s financial situation. So they were able continue to borrow from investors and other liquidity providers, right up to the last big Bitcoin (BTC) drop below $ 20,000:

“You know, I just think that during this time we have continued to work as if nothing had happened. But yes, after that day, when […] Bitcoin dropped from $ 30,000 to $ 20,000 […] it was extremely painful for us. And that’s it, it ended up being some kind of nail in the coffin. “

The GBTC problem

Another factor of illiquidity in 3AC positions is a grayscale product : the Grayscale Bitcoin Trust (GBTC). Before the arrival of Bitcoin ETFs, GBTC was one of the only regulated products in the United States to trade this asset. His popularity led him to trade a price higher than BTC.

The grayscale therefore allowed institutions to provide him with BTC in exchange for GBTC, thereby generating added value for lenders. So 3AC became largest holder of GBTC with a position of over one billion dollars.

This operation, due to the price delta between the underlying and the derivative, should guarantee a profit for the investment fund. But the counterpart to this operation is that the GBTC had to be there locked for six months. As many wished to take advantage of the arbitrage opportunity, the price gap reversed causing large losses to Three Arrows Capital, which was suffering from frozen positions.

Faced with all this cascade of problems and threats, the founders believe who have a vested interest in keeping a low profile for the moment. Furthermore, they specify that the emphasis is on recovery process before thinking about anything else for the future.

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Source: Bloomberg

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