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We’re now used to scam and hack attempts and some failed coins around. If we’re careful, there’s no big deal. But what happens when the bad thing it’s completely out of our control? This may be the case with Three Arrows Capital (3AC), a massive crypto fund that just collapsed. And it’s not alone, because a crypto contagion of liquidity issues among other companies and services seems to be spreading from that event.

The reason is simple: 3AC had investments, partnerships, and, above all, millionaire loans with numerous crypto companies. This fund was somehow reliable because it exists since 2012. Founded by Zhu Su and Kyle Davies, it didn’t have big problems until now. They even managed up to $10 billion in assets and investments at one point.  

Three Arrows Capital (3AC) logo from its official webpage.

It’s all smoke and mirrors today, though. They owe around $3.5 billion to over 32 companies worldwide. Rumors of bankruptcy started in June, and now they’re more than confirmed. A long bankruptcy filing was published recently by the consulting firm Teneo, the appointed liquidator by a British Virgin Islands court.

The document is very revealing by itself, along with the complete absence of answers by 3AC founders. Currently, they’re nowhere to be found, while everyone is trying to seize the fund’s remaining assets. Several bankruptcies and/or financial issues inside the crypto world have followed since 3AC never paid them previous loans.

What happened with Three Arrows?

According to the affidavit filed by Russell Crumpler (from Teneo), things started to go south for 3AC due to the previous Terra (LUNA) collapse. They had at least $600 million in LUNA tokens, which are now practically worthless. The fund also invested in other tokens that performed badly during the last months.

In mid-June, several millionaire transactions in crypto by 3AC were discovered on-chain. Although, they weren’t paying their margin calls to their creditors, and the founders started to ghost everyone. DRB Panama (the crypto exchange Deribit), one of its creditors, discovered these operations but they “were unable to identify to whom the Company’s funds had been transferred and for what purposes the Company’s funds had been transferred.”


However, it was possible to know that at least $31 million in stablecoins were transferred to Tai Ping Shan Limited, a Cayman Islands company indirectly owned by Su Zhu and Kyle Davies’s partner, Kelly Kaili Chen. This still could be a debt payment but isn’t even the worst part.

“Yo, uhh, hmm”, yachts, bungalows, and silence

Apart from the “parlous” financial issues in 3AC, the liquidators discovered that Su Zhu and Kyle Davies, amid this crisis, decided to make a down payment of $50 million for a superyacht. As the filing reads, “Mr. Davies intends this yacht to be larger than any yacht owned even by Singapore’s richest billionaires”. It’s speculated that the yacht was purchased with borrowed funds.

And that wasn’t the only expensive purchase by 3AC founders recently. Su Zhu bought a Good Class Bungalow for around $35 million in Singapore, in March 2022. This one is being held in trust for his three-year-old son —presumably, to keep it out of the reach of creditors. Another $20 million bungalow in Singapore is owned by Su Zhu’s wife.

An example of a Good Class Bungalow in Singapore. Listing by Michael Ciola.

In the interim, Three Arrows Capital was put into liquidation without informing its creditors or its third director (Mark Dubois). Zhu and Davies went on “radio silence”, and only sent their lawyers to deal with these issues. The last communications weren’t satisfactory for its creditors, either. One of them, now trending, shows how asks for its money, and the 3AC answer is literally “Yo… uhh… hmm”.

Crypto contagion: who does this affect?

As we mentioned before, 3AC used to deal with billions of dollars in different assets. A lot of crypto companies were exposed to their investments —and now, to their billionaire losses. The affidavit shows a list of “some” institutional creditors, which implies that there are more of them. Genesis Trading (from the Digital Currency Group) is the more affected crypto firm, with an unpaid loan of over $2.3 billion in Grayscale shares, AVAX, and NEAR tokens.

They’ve declared that the great loss was mitigated by their parent company, the DCG. Other institutional investors weren’t that lucky. The crypto lenders Voyager and Celsius already declared their bankruptcy, after losing millionaire amounts in unpaid loans by 3AC. The average users of these platforms were the most affected, losing all the capital invested in them as well.


Celsius owes $4.7 billion to its users, and it’s currently trying to mine bitcoins to pay. For its part, Voyager owes around $1.3 billion to 100,000 creditors, but it’s unlikely that they recover 100% of the funds. 3AC owes Voyager over $650 million, which makes them the second-most (known) affected company by this crypto contagion root.

Crypto companies and users involved

Other institutional victims, with less than $200 million in loans each, are LuneX Ventures (one of Terra’s funding investors), Moonbeam Foundation (Polkadot developer), PureStake (blockchain developer, and related to Moonbeam), and the crypto exchanges Plutus Lending (Abra), Hashkey Trading, FalconX, Mirana Ventures (partner of Bybit and BitDAO), CoinList, DRB Panama (Deribit), and Arrakis Capital (BitMEX).

Beyond that list, more affected companies mentioned inside and outside the affidavit include, BlockFi, Algorand Foundation, and DeFiance Capital. Besides, given de liquidation status of 3AC, all its remaining shares, coins, and NFTs could be dumped —likely, causing some damage to the prices and startups. One of the startups on their portfolio, the yield service Finblox, already had to limit withdrawals to its customers. They’re also considering taking legal actions against 3AC.

Inside the portfolio of the troubled fund, we can also count over 23 DeFi platforms (along with their native tokens). Among them are Aave, Ardana, Balancer, Bonfida, dYdX, Near Protocol, Perpetual Protocol, FutureSwap, Kusama, Kyber Network, and Lido. On their equities are BlockFi, Deribit, Fireblocks, TPS Capital, and Starkware. This blockchain developer was also financed by Coinbase Ventures, which led to speculation about the crypto exchange being involved with 3AC and having liquidity issues. They denied it, though.

In any case, most companies affected seem to be fine (for now). It’s not the same for the last ones in the long chain of the crypto contagion: the users of the different crypto platforms. Sadly, the ones who trusted these companies more have been losing millions during this debacle. Celsius lawyers, for instance, are alleging that the users gave up legal rights to their crypto once they started to use the platform. As it’s widely said on crypto: not your keys, not your coins.

What’s next for Three Arrows and creditors?

Zhu Su and Kyle Davies are hiding, but, curiously enough, they’re also among the creditors of their own company. Su Zhu is claiming $5 million, and Chen Kaili Kelly (Kyle’s wife) is claiming $66 million. It’s unlikely that they obtain something, though. In the meantime, a U.S. federal court froze the Three Arrows’ assets in the country, and the liquidators are working with the creditors to recover the remaining money. The affidavit reads:

“The Liquidators are, as part of our appointment in the BVI, under a duty, subject to judicial supervision, to conduct an accounting of the assets of and, ultimately, to dissolve the Company and marshal and distribute its assets to its creditors in a fair, legal, and orderly fashion.”

To make this possible, they’re aiming to have access to the Singaporean offices of 3AC. The founders locked the place and denied having documents about the company inside. In addition, “The Liquidators asked for bank account information and information on wallets for the purposes of taking control of the Company’s assets.”


A liquidator meeting with creditors was held recently. On it, they appointed a creditor committee that will comprise Digital Currency Group, Voyager Digital, Blockchain Access UK Ltd, Matrix Port Technologies, and CoinList Lend. It was revealed that 3AC is no longer in possession of BTC or ETH. For confidentiality reasons, many companies haven’t disclosed (and probably won’t) their exposure to the fund —and crypto contagion.

Will Three Arrows hit the whole crypto market?

That’s an important question there. So far, the evidence suggests that if this event affected the crypto market, it already finished. The total market capitalization increased by over 13% in the last month [CoinMarketCap]. Likewise, Bitcoin (BTC) seems to be abandoning the bearish zone, with an increase of 10% in the same period.

As for the mentioned DeFi protocols, they seem mostly unaffected as well, except for Ardana (DANA). This stablecoin hub based on Cardano lost around 42% in the last month. Ryan Matovu, the Ardana founder, revealed that Three Arrows was their largest single investor and it’s expected to receive millions of DANA tokens in the next year. These facts could be very negative for the platform.

Ardana token performance in one month. Source: CMC

We can’t say this is all of it, though. There’s still a lot to discover about 3AC, and the affected companies have a long path ahead to a full recovery. Some of them may not even make it, which, of course, will negatively affect the crypto market at some point. Is there more crypto contagion coming? We can’t know. To date, we can only wait for more news.

Featured vector by Chanwity / Vecteezy

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I'm a literature professional in the crypto world since 2016. It doesn't sound very compatible, but I've been learning and teaching about blockchain and cryptos for international portals since then. After hundreds of articles and diverse content about the topic, now you can find me here on Alfacash, working for more decentralization.

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