Full text of the latest interview with the founder of Three Arrows: Multiple details disclosed for the first time

After five weeks in hiding, Three Arrows founders Su Zhu and Kyle Davies spoke to Bloomberg at an undisclosed location.

They talked a lot of inside information and regretted their crypto journey. They admitted that Three Arrows had a systemic failure in risk management, and that credit liquidity had been greatly affected due to wrong bets. The pair declined to say where they were, though, but a lawyer on the call said their final destination was the United Arab Emirates.

Su Zhu, 35, and Kyle Davies have been friends since high school. They once teamed up to build Three Arrows Capital into a crypto trading behemoth. However, due to bad cryptocurrency speculative trading, Three Arrows ended up causing a domino explosion – with the collapse of Three Arrows, a chain reaction occurred, creditors went bankrupt, the crypto market sold off, to Bitcoin and other tokens. Holders bring huge losses.

On their way to Dubai, the pair called it a “regrettable debacle”.

When Excessive Leverage Meets Crypto Winter

Recently, a British Virgin Islands court ordered the liquidation of cryptocurrency hedge fund Three Arrows Capital, saying they were owed more than $2.8 billion in unsecured claims. That number is expected to rise sharply, court documents show. To date, liquidators overseeing the bankruptcy have controlled assets worth at least $40 million.

Su Zhu and Kyle Davies have long been the most well-known cryptocurrency bulls, yet, fueled by leverage, they have put Three Arrows at the center of the thunderstorm one step at a time. Three Arrows Capital is in trouble as the cryptocurrency collapses. “We’re positioning ourselves in a market that doesn’t end up crashing,” said Su Zhu, adding, “We stubbornly believe that the crypto market will always be good, and at Three Arrows we own all our, Almost every asset. Then, in good times, we do our best, but in bad times, we lose the most. ”

At the same time, Su Zhu and Kyle Davies believe that they are not the only ones with problems in the market, with poor market conditions, interconnected one-way bets and loose lending strategies leading to the bankruptcy of companies such as Celsius Network, Voyager Digital and BlockFi.

“It’s not surprising that it’s not just us, companies like Celsius have problems, we have our own capital, we have our own balance sheet, but we also take deposits from these lenders and we create for them,” Su Zhu said. Earnings. So if we’re in the business of taking deposits and then generating earnings, then you know, that means we end up doing something like that.”

Clearly, Su Zhu and Kyle Davies are passing the buck, knowing that they have been heavily touting cryptoassets before. Just this week, news broke that Su Zhu had paid a down payment for a $50 million yacht before Three Arrows collapsed, but the news sparked Su Zhu’s displeasure and called it slander. “The boat was bought more than a year ago, commissioned and used in Europe, and the yacht has full funding,” explains Su Zhu. Su Zhu has denied claims he enjoys a luxurious lifestyle, noting that he commutes by bike every day and that his family “only has two suites in Singapore”.

The full text of the latest interview with the founder of Three Arrows: Multiple details disclosed for the first time

“We’ve never spent a lot of money at any club. You know, we’ve never seen me drive a Ferrari and a Lamborghini, and I think this smearing of us just comes from the classic script, you know, when this kind of thing happens, When money explodes, you know, these are the headlines that people like to watch.”

The “tragedy” caused by Luna

Su Zhu and Kyle Davies admitted that they suffered significant losses from trading Luna and the now-defunct algorithmic stablecoin UST, and they admit to being surprised by how quickly LUNA collapsed. Su Zhu explained:

“What we didn’t realize was that Luna was able to go to almost zero in a matter of days, which would trigger a credit crunch across the industry and would also put a lot of pressure on all of our illiquid positions. In retrospect, Three Arrows Capital may have partnered with Terra. The founder of Do Kwon is too close.” 

“When Do Kwon moved to Singapore, we started getting to know him personally. And we just thought the project would do something really big, and it was already doing well.” Su Zhu admitted that he misjudged LUNA, “If we To be able to see that, you know, right now it’s like, maybe attackable in some ways, and LUNA was really good at first, you know, too big, too fast. That’s great for us It’s very much like a long-term capital management moment, like a long-term capital moment, where we have different types of deals that we all think are good, and others have those deals, but LUNA is growing so fast.”

One of the deals involved an ethereum-related token called stETH — designed to unlock liquidity from staked ETH and widely used in DeFi. Each stETH could be exchanged for one ETH once the long-awaited upgrade to the ethereum blockchain went into effect, but the turmoil caused by the Terra debacle sent its market cap below that level, resulting in a risk-controlled sell-off by other investors.

Su Zhu further said: “Because Luna just had an accident, it was very much like a contagion, and people would say, well, is there anyone who also uses long-staking ETH instead of getting liquidated ETH as the market goes down? So the whole The industry is effectively looking for these positions, and you know, eventually these people are all hunted.”

Still, Three Arrows was able to continue borrowing from large digital asset lenders and wealthy investors in the early days of the market crisis — until they blew themselves up.

In the wake of Luna’s bankruptcy, Su Zhu said lenders were “satisfied” with Three Arrows’ financial position and even allowed them to continue trading “as if nothing was wrong” — as court documents now show, many of those loans only required Very small amount of collateral.

“So I just think, you know, we continue to be business as usual during that time. But yeah, after that day, when bitcoin goes from $30,000 to $20,000, you know, that’s for us Very painful and that’s the final nail in our coffin. If we play more of the game, we’ll see the credit market itself is a cycle, you know, we may not be able to get extra when we need it credit.”

“Locked” by GBTC

The Grayscale Bitcoin Trust (GBTC) is a closed-end fund that allows those who cannot or do not want to hold bitcoin directly to buy shares invested in their fund. For a while, GBTC was one of the few U.S.-regulated crypto products, so it had its own market and was so popular as an investment that its shares were consistently trading at higher prices than its bitcoin holdings on the secondary market. coin value.

Grayscale, on the other hand, allows large investors like Three Arrows Capital to buy stocks directly by handing them Bitcoin, and these GBTC holders can then sell their holdings to the secondary market. That premium means that any sale can be a handsome profit for big investors. The last filing to the regulator in late 2020 showed that Three Arrows was the largest holder of GBTC, holding a position worth $1 billion at the time.

There’s one snag to the strategy, though: Shares bought directly from Grayscale have a six-month lock-up period. This limitation has been an issue from early 2021, as GBTC has slipped from premium to discount — a stock worth less than the bitcoin that backs it — and the product has had to face more challenges from other similar products. Fierce competition. As the months passed, GBTC traded at an ever-increasing discount and the so-called GBTC carry trade no longer worked—especially hurting investors who used leverage to try to boost returns—and Three Arrows suffered as a result.

The full text of the latest interview with the founder of Three Arrows: Multiple details disclosed for the first time

In Su Zhu and Kyle Davies’ recounts, part of the reason for investing in GBTC was their herd mentality: “The profits were huge, we managed to do it in the right window, and then like everyone else, we started losing money, and And it turned into a negative number. Our trust was discounted, and it was more discounted than anyone imagined.”

Risk-free return? nonexistent!

There is never an investment without risk.

In response to a question about what went wrong with Three Arrows Capital, Su Zhu said that the multi-year bull market has made him overconfident in the market, and this bull market has injected not only his and Kyle Davies’ thinking power, but almost everyone in the crypto industry. Each credit infrastructure service provider.

Su Zhu said: “You always need to have a sense of the field you are entering – when choosing an investment, you need to distinguish whether it is risky or not. For us, if you visit our website, we always have a lot of information about it. A disclaimer of crypto risks, we have never marketed ourselves as risk-free.”

When the crypto market first started to slide in May, he said, “We met all margin calls, so we felt that people should understand there was risk. When we do well, lenders benefit a lot because when we do When it’s done well, they can say, look, I’m making $200 million a year from Three Arrows’ lending business, 10x. But now, it’s the exact opposite.”

Currently, Su Zhu and Kyle Davies are heading to Dubai, and Su Zhu hopes to liquidate through his private assets step by step. Su Zhu revealed that some people in the crypto industry even made death threats to them, so now they want to be safe and keep a low profile, “this is good for everyone.”

Su Zhu concluded: “Given our plan to move our business to Dubai, we must go there as soon as possible to assess whether we can move the company there as originally planned, or whether there are other ideas in the future, but the current situation is very unstable, mainly The point is to help creditors make their payments.”

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/full-text-of-the-latest-interview-with-the-founder-of-three-arrows-multiple-details-disclosed-for-the-first-time/
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