Three Arrows Capital: how a $10 billion fund collapsed in a few weeks

In the summer of 2022, Singapore-based crypto hedge fund Three Arrows Capital (3AC), which managed roughly $10 billion in assets, went bankrupt within weeks. Co-founder Su Zhu later gave journalists a detailed account of what went wrong — a rare case of someone inside a major crypto disaster describing it in his own words.

A Bet That Didn't Pay Off

3AC was a major holder of LUNA token and the algorithmic stablecoin UST from the Terra ecosystem — estimates of the fund's LUNA exposure range from $200 million to $462 million. When UST lost its dollar peg in May 2022 and LUNA crashed to effectively zero within days, that position turned into a multi-billion-dollar unrealized loss.

“What 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”

— Su Zhu, Wall Street Journal / Fortune, July 2022

Quote source: Fortune, July 22, 2022

Leverage Finished the Job

The problem was compounded by the fund using up to 20x leverage on parts of its portfolio — that sharply boosted gains in a rising market but left the fund critically exposed once the market turned. When bitcoin fell to nearly $20,000 in late June 2022, the fund's positions collapsed so badly that 3AC was unable to service a single one of its loans across numerous crypto lenders.

What Happened to the Founders

The timeline after the collapse:

• July 2022 — 3AC files for bankruptcy; founders Su Zhu and Kyle Davies go into hiding, whereabouts unknown
• September 2023 — Su Zhu is detained at Singapore's airport while trying to leave the country, sentenced to 4 months in prison for failing to cooperate with liquidators
• Kyle Davies was never apprehended, despite facing the same sentence
• 2025 — a British Virgin Islands court freezes $1.1 billion in assets belonging to Su Zhu, Kyle Davies and his wife; a Singapore court orders both to disclose information to liquidators

After the fund's collapse, Zhu and Davies launched OPNX, an exchange for trading claims against bankrupt crypto companies.

What This Means in Practice

3AC's story shows a collapse mechanism different from FTX's: there was no direct misappropriation of customer funds here — the fund legally managed its own and borrowed capital, but excessive concentration in a single asset plus high leverage turned one corner of the market (Terra) into a systemic risk for dozens of lenders at once. A similarly catastrophic collapse hit FTX that same year — together, the two collapses triggered one of the harshest "crypto winters" in the industry's history.

This material is for informational purposes only and is not investment advice.