What caused 3AC to collapse?

3AC had borrowed hundreds of millions from multiple lenders and deployed heavily into Terra/LUNA and stETH. When both collapsed in May 2022, 3AC could not meet margin calls and defaulted on loans across the ecosystem.

What happened to the founders?

Zhu Su and Kyle Davies fled after the collapse. Zhu Su was arrested in Singapore and sentenced to 4 months in prison for contempt of court in bankruptcy proceedings. Davies remains a fugitive.

How much did 3AC owe creditors?

Creditors filed claims totaling over $3.5 billion. Major casualties included Voyager Digital ($650M exposure) and Genesis, which eventually filed bankruptcy itself.

// startup autopsy

Three Arrows Capital

The most influential crypto hedge fund in the world — wiped out in weeks by a levered bet on Terra/LUNA and stETH.

unit economicsBankruptcy

Fatal mistake: Extreme leverage across undisclosed multiple lenders with catastrophic concentration in Terra/LUNA and stETH

Founded	2012
Closed	2022
Country	Singapore
Sector	Crypto
Raised	AUM ~$10B at peak (no disclosed fundraise)
Founder	Zhu Su

// the model, blind

Evaluating only Three Arrows Capital’s profile at its peak — without knowing the outcome — the model ranked Fraud as the #1 likely cause. Documented cause: Unit economics.

Key Events Timeline

2012-01

FOUNDING

Three Arrows Capital founded

2017-06

DOWN ROUND

Down round or bridge financing

2021-01

FUNDING

3AC reports ~$18B AUM; Su Zhu and Kyle Davies appear on major crypto podcasts as industry elder statesmen; fund considered most credible institutional name in crypto.

2022-05

SHUTDOWN

UST stablecoin depeg triggers LUNA spiral to near zero; 3AC loses estimated $600M on LUNA positions; fund cannot meet margin calls from Genesis, Celsius, Voyager, BlockFi totalling >$3.5B.

2022-06

SHUTDOWN

Bankruptcy: Three Arrows Capital ceases operations

2023-09

FRAUD EXPOSURE

Su Zhu arrested at Singapore Changi Airport attempting to board a flight; sentenced to four months imprisonment. Kyle Davies remains at large. Liquidators claim $3.5B+ from founders.

Full Analysis

Free · no account needed

Documented cause

Three Arrows Capital (3AC) was the dominant force in crypto venture and trading from 2018 through early 2022, backing projects like Avalanche, Solana, Axie Infinity, and dozens of others. Founded by former Credit Suisse traders Zhu Su and Kyle Davies, the fund managed an estimated $18 billion at peak and operated with extreme leverage across multiple lenders simultaneously — reportedly borrowing from Voyager Digital, Genesis, BlockFi, and others without full disclosure of its overall exposure. When Terra/LUNA collapsed in May 2022, 3AC's $500 million+ position became worthless. Simultaneously, its stETH holdings depegged from ETH, creating further losses. Unable to meet margin calls, 3AC defaulted on loans to multiple counterparties in June 2022. The fund entered liquidation proceedings in the British Virgin Islands and filed for US Chapter 15 bankruptcy. The collapse triggered a cascade of insolvencies across crypto lending, taking down Voyager Digital and contributing to BlockFi's bankruptcy.

Alternative account: Three Arrows Capital (3AC) managed approximately $10B at its peak, making leveraged bets across crypto assets with borrowed capital from multiple lenders. Co-founders Su Zhu and Kyle Davies built concentrated positions in Luna/UST and staked Ethereum products. When Terra/Luna collapsed in May 2022, 3AC's positions were devastated. Margin calls from Voyager Digital ($650M), BlockFi, and Genesis exceeded the fund's liquidity. 3AC defaulted on all obligations and filed for liquidation in the British Virgin Islands in June 2022. The founders evaded liquidators for months.

Lesson

“Leverage borrowed from multiple lenders without disclosed aggregate exposure is not sophisticated risk management — it is fraud in slow motion. Alternative account: Lending capital to an unregulated crypto hedge fund with no published balance sheet, no audited NAV, and concentrated exposure to a single algorithmic stablecoin is not yield generation—it is an uncollateralised donation to eventual insolvency.”

Failure anatomy

Collapse type

Bankruptcy

📉 MEDIUM

Hype cycle

peak of inflated expectations

Moat type

Relationships

Fatal mistake

Extreme leverage across undisclosed multiple lenders with catastrophic concentration in Terra/LUNA and stETH