In an interview with Bloomberg, the two founders of the Three Arrows Capital (3AC) cryptocurrency fund broke their silence after days of hiding.
Su Zhu and Kyle Davies, both 35, met in high school. They built 3AC into a huge crypto investment fund before it defaulted and had to file for bankruptcy on July 1 due to the crypto market crash.
3AC’s liquidation advisers said in their July 8 application that Zhu and Davies were not cooperating with them, nor were they aware of their whereabouts.
According to Zhu, they were threatened with death and had to hide. “That does not mean that we do not communicate with the relevant authorities. We contacted them from the very beginning.”
Zhu and Davies acknowledge that 3AC’s collapse was mainly related to Grayscale Bitcoin Trust (GBTC) transactions and two tokens Terra Luna (LUNA) and terra USD (UST). In June, the two founders reported a loss of about $200 million because of the stablecoin pair UST and LUNA. UST plunged to near zero values in the last week of May, and LUNA fell into the same situation a week later.
“What we didn’t realize was that Luna could become worthless in a matter of days and this catalyzed a credit squeeze across the industry, putting significant pressure on all of our positions.” Zhu said. Zhu and Davies also do not see the risk associated with Terra as the rest of the market is affected by the loss.
Both tokens are trading 90% below their peak. Besides Terra, 3AC is also one of the largest GBTC holders. GBTC is a financial product that allows investors to own Bitcoin through their stock brokerage account. GBTC holders can sell shares on the OTC market. This method is very attractive to investors because of its high return.
At the moment, 3AC’s GBTC shares have been locked for 6 months with an estimated value of over $1 billion. Falling prices mean investors suffer losses, not to mention 3AC still uses leverage. Along with market volatility, GBTC dropped from $34 per share at the beginning of the year to $12 at the beginning of the week.
While waiting for the market to recover, 3AC continues to borrow, however, there are no positive signs yet. After Bitcoin fell below the $20,000 mark, the fund became insolvent to all its creditors. 3AC is said to still owe about $3.5 billion to 27 different companies, including $2.3 billion to crypto lender Genesis Global Trading. Davies and Zhu declined to say where they are, but a lawyer revealed that their ultimate destination will be the United Arab Emirates, a cryptocurrency hotspot.
Du Lam (According to Bloomberg, Btctimes)