Three Arrows Capital’s founders tell about the reasons for the hedge fund’s collapse

What’s new? Cryptocurrency hedge fund Three Arrows Capital (3AC) is exploring the possibility of asset sales and other recovery options after suffering heavy losses amid a sharp fall in the cryptocurrency market. This was revealed by its founders Su Zhu and Kyle Davies in an interview with the Wall Street Journal, Zerohedge reports. They linked the problems of the fund to the collapse of the Terra blockchain ecosystem — then the project team initiated the sale of bitcoin to maintain its stablecoin, which led to a drop in the price of many cryptocurrencies, due to which lenders began to demand repayment of loans.

Information on Zerohedge's website

What caused the bankruptcy? In April, the hedge fund had about $3 billion in assets under management before Terra, its UST stablecoin and the LUNA token collapsed. Three Arrows was among the project's major investors when Luna Foundation Guard (LFG) held a $1 billion token sale. The funds were used to create a bitcoin-denominated reserve for the stablecoin and were supposed to help maintain UST parity against the US dollar.

According to Davies, 3AC invested about $200 million in LUNA as part of the deal. That amount was lost when UST and LUNA became worthless in a matter of days. He also stressed that the selloff of bitcoin itself in May contributed to the fact that LFG began dumping the asset to support the UST rate.

The fund's losses in the Terra collapse were not critical, but the subsequent selloff of a number of digital assets aggravated many companies in the crypto space as lenders began demanding full or at least partial repayment of loans.

Davies said the company intends to reach an agreement with lenders that will give it more time to develop a recovery plan. The fund owes a total of $3,5 billion to the 27 companies that invested in it.

On June 29, a court in the British Virgin Islands ordered the liquidation of the fund. After that, 3AC filed for bankruptcy in the US under a form barring seizure of assets in the States until the liquidation proceedings were completed.