What happened
A hedge fund that borrowed from nearly every large lender in crypto without any of them knowing how much the others had lent it.
| When | June 2022 |
| What kind of failure | Hedge fund collapse |
| What it cost | About $3.3 billion owed to creditors |
The version the public saw
Three Arrows Capital was among the most respected funds in the industry, founded by two former traditional finance traders. Its co-founder was one of the most followed accounts in crypto and had built a public thesis that the market would only go up, which he named the supercycle.
Underneath the same period
The fund was heavily leveraged into positions that all depended on the same thing, and borrowed from many lenders at once against collateral it had described inconsistently. When lenders asked for margin, several discovered they were behind other lenders they had not known existed.
The sequence
Luna goes to zero
3AC had a large position in Terra's LUNA. When Terra collapsed in May 2022 the fund lost around $200 million of it, and lost far more in the wider decline that followed.
Margin calls arrive together
In June 2022 lenders across the industry called margin at roughly the same time. The fund could not meet them, and stopped answering.
Liquidation
A British Virgin Islands court ordered the fund into liquidation on 27 June 2022. Liquidators arrived at the Singapore office to find it abandoned.
The contagion spreads
Voyager Digital, BlockFi and Genesis had all lent to 3AC. Voyager filed for bankruptcy within weeks. The failure propagated through the lenders and reached their depositors.
The signals, before anybody knew the ending
None of these needed hindsight. Each one was public, or checkable, while the money was still there.
- A fund borrowing from many lenders with no disclosure between them
- A public thesis that ruled out the possibility of being wrong
- Collateral described as diversified while being concentrated in correlated bets
- Founders who stopped communicating before anything was announced
The aftermath
Liquidators pursued the founders across jurisdictions and secured a freeze on roughly $1.1 billion of assets. Su Zhu served four months in a Singapore prison in 2023 for failing to cooperate with liquidators. Creditors were owed about $3.3 billion. Both founders have since launched new ventures.
The part that changes what you do
This is the clearest example in crypto of why a platform you have never heard of can lose your money. Depositors at Voyager had no relationship with 3AC, had never chosen to lend to it, and lost their funds anyway. When you deposit somewhere, you inherit every counterparty that platform has, and you are not shown the list.
Common questions
How did one fund take down so many companies?
Did anybody go to prison?
What is contagion in this context?
Where to go next
Other cases like this one
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