Three Arrows Capital, a cyberpunk Icarus story

Context: 3AC rose to prominence in late 2019 and 2020, as DeFi Summer began to bring optimism back to the cryptocurrency industry. By 2021, Su Zhu, the most vocal of its two co-founders (the other being Kyle Davies), had achieved something like guru status in the crypto world.

• If this were a newscast, imagine a sort of TikTok style video riffing on the myth of Icarus, with cyberpunk and rainbow unicorn vibes.

There was a bit of a joke in 2021 that some market participants might have taken too far. Many people, particularly in the Ethereum world, were talking about "up only." Meaning, the value of crypto assets would only ever increase.

• Honestly, it was intentional self mockery, but if anyone can be credited with taking the thesis seriously, it was Zhu.
• Zhu was the originator of the super cycle thesis: The idea that enough institutional money had come into crypto that bitcoin wouldn't fall dramatically again as it had in prior cycles.

Flashback: "I definitely think if bitcoin price goes over a million, if it goes over 500K, it's not gonna be driven as much by retail anymore. It's gonna be driven a lot more by larger players," he said on the UpOnly YouTube show in February 2021, "and so I think you'll generally see much more muted moves on the way down as well as on the way up."

Common wisdom has had it in crypto that bitcoin usually hits something like 5X its prior all time high in a bull and then loses about 80% in the next bear.

• But, Zhu said he was trading as if bitcoin would not fall like that again. Not that it wouldn't fall, but that the bottom wouldn't completely come out like it had.

He was wrong. On June 18, bitcoin price fell to under $18,000, well below the 2017 market top, which was just under $20,000.

From the outside looking in, it seems like the trade that might have broken them came when it co-led with other top tier investors in trading a billion dollars in bitcoin for luna in February, creating the Luna Foundation Guard, to protect the Terra ecosystem.

• It was probably the most expensive flop in crypto to date.

For atmosphere: Zhu did a podcast with Pardigm's researcher, Hasu, called Uncommon Core. Hasu did by far most of the talking, but Zhu's taciturnity enhanced his mystique.

Zooming out: In crypto, investors both make long bets and do daily trading. Its hard to know how much of each 3AC's strategy depended on.

• That said, 3AC's investments included some of the best companies, including Aave, Balancer and dYdX.
• They'd backed Axie Infinity, which did amazing in 2021.
• And they would have booked giant gains on early blockchain bets, such as Avalanche, Polkadot and Solana.

Nevertheless, it seems that even with all those gains, they tried to push it even further and somehow got over extended.

• The firm has not replied to multiple requests for comment.

State of play: The liquidation process is reportedly being overseen by the firm Teneo. And Singapore just issued 3AC a reprimand.

The bottom line: News about centralized lender Genesis Trading, which turned out to be heavily exposed to 3AC, only bolsters contagion fears.