Co-founder of Three Arrows Capital interviewed: Regrets about the fund collapse, heading to Dubai, and clarifying defamation.

Five weeks after disappearing from the public eye, Three Arrows Capital founders Su Zhu and Kyle Davies have granted an interview to Bloomberg, responding to various media smear campaigns and addressing the bankruptcy rumors. They also mentioned plans to travel to Dubai to assist creditors in seeking compensation.

Why is Three Arrows Capital in Hiding?

According to a report by Bloomberg, Su Zhu and Kyle Davies expressed regret over their mismanagement of asset management, leading to the bankruptcy of numerous creditors and triggering a massive liquidation in the crypto market. However, they deny the accusations from the community that 3AC withdrew funds and fled before the incident erupted.

"People may say we were foolish or delusional, and I can accept that. But when they claim we withdrew funds and fled before the crisis, that's not true. In fact, I invested more of my personal funds into it," Su Zhu stated.

Furthermore, regarding Su Zhu and Kyle Davies' reluctance to cooperate with the advisors responsible for liquidating the fund, Su Zhu mentioned that they had no choice but to go into hiding.

"Death threats forced us to go into hiding, which doesn't mean we haven't been communicating with the relevant authorities. We have been in communication with them since day one," Su Zhu said.

As for their current whereabouts, they refused to disclose, only indicating that their final destination would be the United Arab Emirates, as it has become a hotbed for the development of the crypto industry.

When Leveraged Investments Meet Crypto Winter

As prominent bulls in the crypto industry, 3AC's trades often involved leverage, but their excessively risky operations led them to the epicenter of the explosion.

"We believed in everything wholeheartedly, almost bringing all assets into play. In good times, we excelled. However, in bad times, we lost profoundly," Kyle Davies stated.

Additionally, they mentioned interrelated one-way operations and loose lending conditions that detonated simultaneously. This not only resulted in the collapse of their fund but also triggered the bankruptcies of companies like Celsius Network, Voyager Digital, and BlockFi.

"Companies like Celsius, 3AC, and others all have problems. We have our own capital, balance sheet, but at the same time, we absorb deposits from lenders and generate revenue for them. So, if we engage in businesses that involve taking deposits and generating revenue, it means we will eventually end up in a similar situation," Su Zhu explained.

Is Three Arrows Capital Really Lavish?

After the incident, several media outlets reported that creditors claimed the founders of 3AC had just made a down payment on a $50 million yacht before the fund collapsed. However, Su Zhu dismissed these claims as slander.

"The yacht was purchased over a year ago, commissioned and used in Europe, with a complete source of funds," Su Zhu clarified.

Su Zhu denied the accusations of extravagance by the media and mentioned that he commutes to work by bicycle every day, and his family in Singapore only owns two houses.

"We were never seen splurging at nightclubs with wads of cash or driving Ferraris and Lamborghinis. This kind of smear is just a typical script that people like to see when funds collapse," Su Zhu added.

Impact of Terra's Collapse

The main reason for 3AC's current plight stems from the collapse of UST and LUNA, with the founders admitting significant losses in this event.

"What we didn't realize was that Luna could go to zero within a few days, triggering a credit crunch across the industry, putting immense pressure on all our illiquid positions. The company's relationship with Terra founder Do Kwon was too close," Su Zhu explained.

However, even with LUNA going to zero, many lenders were still satisfied with their financial condition and allowed them to continue trading. This situation also confirmed the contents described in court documents, where many loans only required minimal collateral.

In this scenario, while 3AC continued their precarious business, the day when Bitcoin dropped from $30,000 to $20,000 marked the death of 3AC.

GBTC - Three Arrows' Rise and Fall

Previous reports indicated that Grayscale's GBTC also dealt a heavy blow to 3AC's investment portfolio. Su Zhu acknowledged this and believed that part of the reason was due to 3AC's success, which then drove GBTC and subsequent herd effects:

"We managed to enter at the right cycle premium, just as others learned from us, 3AC tried to replicate the GBTC premium trading again, this time not only losing money but GBTC also saw a significant discount, and because too many people entered, the discount was much larger than expected by everyone."

Bull Market Boosts Confidence of 3AC and Creditors

Su Zhu pointed out that the confidence generated by the years of bull market not only flowed into him and Kyle Davies but also into all lending institutions in the crypto industry. These lenders inflated due to seeing the value of 3AC:

"These lenders benefited greatly when 3AC was making money. They might have said at the time, 'Look, I made $200 million a year just by doing business with 3AC. If I had ten times the funds, I could make $2 billion.'"

Heading to Dubai

The two co-founders stated that they would head to Dubai with the aim of eventually orderly liquidating their complex private assets. Su Zhu stated:

"Many crazy people have threatened us with death, but I think protecting our personal safety is actually more beneficial to everyone. Since the focus of 3AC's business is shifting to Dubai, we must assess the situation there as soon as possible, as the current situation remains unstable."

The main focus is still on assisting the creditors, Su Zhu emphasized.