Three Arrows Capital (often referred to as “3AC” or the “Three Arrows Fund”) was a prominent cryptocurrency hedge fund that collapsed in 2022 amid the broader crypto market crash. Founded in 2012 by Su Zhu and Kyle Davies, 3AC was a Singapore-based hedge fund specializing in cryptocurrency investments. At its peak, it managed over US$10 billion in assets and was known for aggressive bets on crypto projects, including leveraged positions in Bitcoin, Ethereum, and emerging tokens.
The downfall began in May 2022 with the catastrophic failure of the Terra ecosystem. Terra’s algorithmic stablecoin, UST, lost its US$1 peg and spiraled to near-zero value, wiping out billions in market capitalization. This UST loss was exacerbated by the linked LUNA token’s collapse. 3AC had significant exposure to Terra/LUNA and reportedly lost around US$200 million directly from these positions. The fund’s highly leveraged strategies amplified the damage.
Around the same time, Tether (USDT)—the world’s largest stablecoin, pegged 1:1 to the US dollar—briefly depegged to about US$0.95 amid market panic and redemption pressures, fueling fears of a broader stablecoin contagion. However, Tether stabilized and didn’t fail; instead, it processed billions in redemptions and maintained its reserves.
By June 2022, the crypto market’s downturn (often called the “crypto winter”) had exposed 3AC’s vulnerabilities. The fund failed to meet margin calls from lenders, including players such as BlockFi and Genesis. It had borrowed heavily (including US$350 million in USDC—a stable coin called USD Coin—and over 15,000 bitcoin) without adequate risk management, leading to forced liquidations.
On June 27, 2022, a British Virgin Islands court ordered 3AC into liquidation after creditors petitioned for repayment. Teneo (BVI) Ltd. and the affiliated individuals (Russell Crumpler and Christopher Farmer) were appointed as joint liquidators for 3AC.
Liquidators estimated 3AC’s assets at around US$1 billion in July 2022, far short of its liabilities. Legal proceedings are continuing in 2026, with disputes over claims. Several developments occurred in 2025:
- March 14, 2025: A U.S. bankruptcy court in Delaware approved 3AC’s request to amend and expand its proof of claim against the bankrupt FTX exchange (see Chapter 3 of Famous Frauds & Financial Failures) from an initial US$120 million to US$1.53 billion. The claim stems from alleged losses due to FTX’s actions prior to its collapse, including a US$1.33 billion shortfall attributed to FTX’s handling of 3AC’s positions. The dispute focuses on how much crypto 3AC held when both companies collapsed in 2022. 3AC claims its account balance was nearly US$1.6 billion. FTX says the real net value was only US$284 million after accounting for US$733 million in margin debt. When crypto prices started falling across the market in May 2022, 3AC’s account balance at FTX dropped below the required US$240 million minimum. When FTX contacted 3AC about the breach, 3AC ignored them for over six hours and, instead of responding to the margin call by adding funds, withdrew US$18 million in Ethereum from the account. This forced FTX to begin liquidation procedures. FTX converted the volatile crypto holdings in the account into US dollars. FTX’s estate argues that this was a contractual step, taken under the credit and margin agreements both parties had signed, not a seizure of assets.
- April 9, 2025: Following the court’s approval, 3AC’s liquidators formally increased the claim against FTX to US$1.53 billion in the ongoing Chapter 11 proceedings.
- June 23–24, 2025: FTX’s bankruptcy recovery trust filed objections to the expanded US$1.53 billion claim, arguing it was “illogical” and that 3AC was “owed nothing.” FTX contended that the claim lacked merit and could jeopardize its reorganization plan, while 3AC’s liquidators maintained it was valid based on pre-collapse dealings.
- December 2, 2025: 3AC’s liquidators continued to defend the US$1.53 billion claim against FTX in court filings, emphasizing its legitimacy amid ongoing objections from FTX.
These proceedings are part of multi-jurisdictional efforts by liquidators Teneo to recover assets for creditors, with the FTX claim dispute remaining unresolved as of the end of 2025.
3AC’s collapse contributed to a domino effect, impacting lenders such as Voyager Digital and Blockchain.com (which faced a US$270 million hit). It highlighted systemic risks in crypto, including overleveraging and interconnected borrowing. Zhu and Davies initially went silent and relocated, claiming that they faced threats. In later interviews, they admitted to risk management failures and faced continuing criticism for their lavish lifestyles post-collapse.
Sources:
Howcroft, Elizabeth (2022), “Crypto Hedge Fund Three Arrows Capital Has Entered Liquidation, Source Says,” Reuters.com, June 29: https://www.reuters.com/technology/crypto-hedge-fund-three-arrows-capit…
No author listed (2022), “Crypto Hedge Fund Three Arrows Capital Plunges into Liquidation as Market Crash Takes Toll,” CNBC.com, June 29: https://www.cnbc.com/2022/06/29/crypto-hedge-fund-three-arrows-capital-…
No author listed (2022), “Three Arrows Capital to Become Latest Casualty of Crypto Crash,” The Guardian, June 29: https://www.theguardian.com/technology/2022/jun/29/three-arrows-capital…
No author listed (2022), “Three Arrows Capital Falls into Liquidation after Crypto Crash,” The Washington Post, June 29: https://www.washingtonpost.com/business/2022/06/29/three-arrows-liquida…