Three Arrows Capital Collapse

Three Arrows Capital collapsed in June 2022, marking one of the most significant failures in cryptocurrency history. Founded by Su Zhu and Kyle Davies, the Singapore-based hedge fund managed an estimated $10 billion in assets at its peak before imploding amid massive leveraged bets on digital assets during a market downturn.

The fund's downfall began with its heavy exposure to Terra Luna and TerraUSD tokens, which collapsed in May 2022 and wiped out billions in Three Arrows' portfolio. The firm had also made large leveraged investments in Bitcoin and other cryptocurrencies, using borrowed funds that became impossible to repay when prices plummeted.

Three Arrows' insolvency triggered a contagion effect throughout the cryptocurrency industry, as numerous lending platforms and trading firms had extended credit to the fund. Notable casualties included Celsius Network, Voyager Digital, and BlockFi, which faced severe liquidity crises due to their Three Arrows exposure.

Court proceedings revealed that Su Zhu and Kyle Davies had fled Singapore before the collapse, failing to cooperate with liquidators attempting to recover assets for creditors. A U.S. court held the founders in contempt for refusing to provide information about the fund's missing assets, estimated at several billion dollars. The case highlighted the lack of regulatory oversight in cryptocurrency markets and the risks of excessive leverage in digital asset trading.