Regulatory action

Three Arrows Capital Default

Largest crypto hedge fund of its era defaults on $3.5B in loans after concentrated exposure to Terra and Grayscale Bitcoin Trust collapses. Triggered cascading defaults across crypto lenders.

Losses

$3.5B

Affected

~27

Started

Jun 2022

Collapsed

Jul 2022

Timeline

2012-2022: Founded by Su Zhu and Kyle Davies, 3AC grows to $10B AUM

2022 Q1: 3AC heavily exposed to Grayscale BTC Trust (trading below NAV) and LUNA

May 2022: Terra collapse destroys 3AC's LUNA position (~$600M)

June 13, 2022: Zhu tweets 'we are in the process of communicating with relevant parties' — first public sign of distress

June 27, 2022: BVI court orders 3AC liquidation

July 1, 2022: Chapter 15 bankruptcy filed in SDNY. $3.5B+ creditor claims from Genesis, Voyager, BlockFi, Celsius

2023: Zhu arrested in Singapore on contempt charges. Founders remain in hiding / partial cooperation

Evidence

Verified via: BVI court orders, SDNY bankruptcy filings, extensive reporting by CoinDesk and Bloomberg, creditor claim filings.

Lessons for you

'Prime brokerage'-style crypto lending was under-collateralized and largely unregulated
Concentrated positions in a few trades (GBTC arb, LUNA) can destroy even billion-dollar funds
Counterparty risk in crypto propagates through opaque lending chains — 3AC's failure cascaded to 5+ major lenders
Founder social media presence and confidence are no substitute for due diligence on actual book