3 Reasons Why 3 Arrows Capital Failed, Per Its Founders

cryptonews.com:

There were at least three major factors that lead to the collapse of the fund, according to the founders of Three Arrows Capital (3AC) Su Zhu and Kyle Davies.

After five weeks in hiding, stating that they’ve gotten death threats, the founders spoke to Bloomberg, which described the duo as “at times contrite and at times defensive,” and made a note of their “efforts […] to deflect blame.”

The founders identified three major causes that lead to 3AC’s fall: 

Davies and Zhu acknowledged heavy losses related to trades in Terra’s LUNA and the failed algorithmic stablecoin TerraUSD, claiming that,

“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,” Zhu said.

Also, per him, the firm may have been too close to Terra’s founder, Do Kwon.

The fund was then able to continue borrowing from large digital-asset lenders and wealthy investors, with Zhu claiming that lenders were “comfortable” with 3AC’s financial situation, and that they allowed them to keep trading “as if nothing was wrong” – but many of these loans had required a very small amount of collateral, said Bloomberg, citing court documents.

After the company “continued to do business as usual,” said Zhu,

“Bitcoin went from [USD] 30,000 to [USD] 20,000, you know, that, that was extremely painful for us. And that was in, that ended up being kind of the nail in the coffin.”

Lastly, digital asset giant Grayscaleentered the mix. The company allowed big investors like 3AC to purchase shares directly by giving BTC to the trust, and these could then sell the shares to the secondary market. Bloomberg noted