Inside the Three Arrows Capital money machine

Follow the money in the recent crypto market tumult and it won’t be long before you bump into Three Arrows Capital. 

The investment firm — often referred to by its initials 3AC — punches well above its weight. According to two people close to 3AC and the firm’s LinkedIn profile, it employs fewer than 10 staff — yet has invested in dozens of blockchain developers, DeFi startups and crypto infrastructure providers.

3AC operated out of Singapore until last year, when it reportedly relocated to the British Virgin Islands. It also flirted, albeit unsuccessfully, with establishing a base in Dubai. One leaked email from February this year, reviewed by The Block, shows a representative of 3AC affiliate TPS Capital boasting that it had $3.5 billion in assets.

Its CEO Zhu Su is an outspoken presence on social media who had touted a “supercycle” thesis that forecast the price of bitcoin rising to $2.5 million. He bought a mega-yacht that was scheduled for delivery to Dubai amid 3AC’s meltdown, according to two people with direct knowledge of the matter. 

Neither Zhu, 3AC co-founder Kyle Davies, nor Solitaire LLP, the law firm that reportedly represents 3AC, responded to multiple requests for comment on the points raised in this article. 

But how did 3AC come to manage billions of dollars in crypto? And why have its travails had such a far-reaching impact within the industry? 

In part, because the company had searched far and wide for loans from fellow crypto market participants prior to its collapse. Exactly how it used the funds it borrowed is yet to be deciphered, but the list of reported lenders to 3AC already includes Genesis Global Trading, BlockFi Lending, Voyager Digital — and, most recently, Blockchain.com.

Both BlockFi and Genesis reportedly liquidated 3AC’s collateral after it failed to meet margin calls. Crypto app Voyager had lent more than $650 million to 3AC, and issued the fund with a notice of default on June 27. Crypto exchanges BitMEX, Deribit and FTX have all liquidated 3AC positions in recent weeks, and BitMEX is still owed $6 million by the fund, as The Block reported last month. 

The Block has learned, however, that the list of 3AC’s creditors goes well beyond these larger lenders, custodians and exchanges. 

Pitching far and wide

Three examples of outreach from the fund’s executives, reviewed by The Block, show that it pitched both investment companies and startup founders — seeking to manage part of any funds they had stockpiled, whether amassed through a token sale or through investments. Kyber Network, a DeFi startup, issued statements on Twitter last week about 3AC managing “a small portion” of its treasury. 

Two of the messages reviewed by The Block — one sent in February this year — show Tim Lo, head of trading at 3AC affiliate Tai Ping Shan Capital (TPS Capital), offering “competitive rates” on loans of bitcoin, ether and a range of stablecoins. In one email, Lo listed rates of 3% annually on bitcoin and ether loans, and 10% on stablecoins. In the other, he describes TPS Capital as 3AC’s over-the-counter (OTC) desk, a place where investors can make trades away from exchanges. 

The third message, sent to a startup that had raised money from 3AC late last year, states: “We hope to share some information on treasury management solutions available to Web 3 organizations. We hope that this will be helpful given the market conditions as it could help extend the runway of projects significantly.”

A borrowing request published on the website of TrueFi, a DeFi lender, in December describes TPS Capital as “a principal trading desk, providing market-making, trade facilitation and block trade services.” The request also states that 3AC has more than $4 billion in assets.

In the messages reviewed by The Block, Lo bigged up 3AC’s bona fides, pitching it as “one of the top tier funds in the space” — with $3.5 billion in assets, and licensed and audited in Singapore. The website of the Monetary Authority of Singapore (MAS) lists 3AC as a registered fund company, a categorization that limits it to serving no more than 30 qualified investors, and managing no more than 250 million Singapore dollars (roughly $180 million). On June 30, MAS issued a rebuke of 3AC, accusing the fund of providing false information and exceeding its assets under management threshold. The regulator also claimed that the company failed to notify it about changes to directorships and shareholdings.

The Block reached out to MAS about whether the watchdog still has oversight of 3AC. A spokesperson said: ​​“As a matter of policy, MAS does not comment on our dealings with specific financial institutions.”

Lo also pitched potential investors on an arbitrage opportunity that involves Grayscale's bitcoin-linked fund GBTC, as reported earlier by The Block. Lo was contacted for comment but did not respond by press time. 

Whale hunting

3AC also looked to wealthy individuals — so-called crypto “whales” — for loans. One eye-grabbing example comes in the form of Taiyang Zhang, co-founder of the DeFi project Ren. Three people close to 3AC told The Block that Zhang lent tens of millions of dollars to the fund and that he was a close friend of Zhu. In the past, the pair have tweeted pictures of themselves playing chess and poker, as well as wakeboarding together. 

Zhang briefly worked as a venture partner at Sam Bankman-Fried’s Alameda Research after it acquired Ren in February of last year. He left the firm this year, according to his LinkedIn profile. Zhang did not respond to multiple requests for comment. 

More corporate lenders may yet come out of the woodwork. Research firm FSInsight recently claimed in a report that 3AC borrowed from “just about every institutional lender.” Whether a full breakdown of 3AC’s creditors ever comes to light may depend on how the company resolves its issues. The Wall Street Journal reported last month that the company is considering selling off assets and seeking a possible bailout. Earlier this week, a British Virgin Islands court ordered the liquidation of the company, with New York-based advisory firm Teneo appointed to handle the process.

For now at least, sources close to 3AC claim its executives are only contactable through lawyers. The silence from the fund and its co-founders continues. 

Sam Venis contributed to the reporting for this article.