Three Arrows Capital

Three Arrows Capital (3AC), co-founded by Su Zhu and Kyle Davies in 2012, began as a traditional hedge fund focusing on foreign exchange and emerging markets. Over time, it pivoted significantly to become one of the most prominent and aggressive cryptocurrency hedge funds, operating out of Singapore. By its peak, 3AC was a major player in the digital asset space, known for its high-conviction, often highly leveraged, bets across various crypto sectors.

The firm's investment strategy in the crypto era was characterized by substantial positions in major cryptocurrencies like Bitcoin and Ethereum, alongside significant venture investments in promising blockchain projects, decentralized finance (DeFi) protocols, and non-fungible tokens (NFTs). Three Arrows Capital was a key participant in numerous funding rounds for notable crypto startups, often deploying substantial capital. For instance, they were involved in a $230 million funding round for Avalanche in 2021 and led a $25 million raise for crypto derivatives exchange Deribit in 2020. At its zenith, the fund reportedly managed assets under management (AUM) of approximately $3 billion as of March 2022, reflecting its considerable influence and capital deployment capabilities within the rapidly expanding crypto market.

However, 3AC's highly leveraged positions and concentrated bets ultimately led to its dramatic downfall. The firm suffered catastrophic losses following the collapse of the Terra (LUNA) ecosystem in May 2022, in which it had significant exposure. This was compounded by further losses from investments in and loans to other distressed crypto firms, including Celsius Network and Voyager Digital. Unable to meet margin calls and facing widespread liquidations, Three Arrows Capital filed for Chapter 15 bankruptcy in July 2022, marking one of the most significant collapses in cryptocurrency history and sending shockwaves through the industry.

Its demise served as a stark reminder of the risks associated with high leverage and concentrated exposure in volatile markets, fundamentally altering the landscape for many crypto investors and institutions.