In a decisive turn of events, the founders of the beleaguered cryptocurrency hedge fund Three Arrows Capital (3AC) have faced a staggering financial blow. A British Virgin Islands court has ordered the freezing of over $1 billion in assets belonging to 3AC co-founders Su Zhu and Kyle Davies, along with Davies’ wife, Kelly Chen. This move by the court comes as a response to the fund’s implosion in 2022, amidst a broader crypto market downturn, leading to substantial losses for its creditors.
The court’s decision echoes the concerns of Teneo, the liquidator handling the 3AC case, which estimates that the creditors are owed a massive sum of around $3.3 billion. This financial morass has not only impacted the founders but also sent ripples across the cryptocurrency sector, highlighting the risks and volatility inherent in the industry.
A Global Ripple Effect
The freezing of assets by the British Virgin Islands court is a part of a larger narrative that has seen 3AC’s operations crumble under financial strain. Once a significant player in the crypto hedge fund arena, 3AC’s downfall has been a stark reminder of the precarious nature of cryptocurrency investments. The liquidator’s report indicates that the company’s assets, valued at approximately $1.16 billion, consist mainly of illiquid tokens, making the recovery process for creditors even more challenging.
This development also comes on the heels of Zhu’s arrest in Singapore, where he attempted to leave the country. The Singaporean authorities have since banned Zhu and Davies from engaging in any regulated activities within the country, further tightening the noose around the founders’ operations. The legal entanglements and financial troubles of 3AC have brought to light the complexities and often unregulated nature of the cryptocurrency market.
The Road Ahead for 3AC Creditors
Amidst this turmoil, the liquidators have provided a glimmer of hope for the creditors. The estimated recovery rate stands at 45.74% of their claims, with initial distributions planned for the early part of the next year. However, the majority of 3AC’s assets are in the form of illiquid tokens, which are subject to vesting periods extending till the end of 2026. This long-term recovery process underscores the challenges faced in unwinding the positions of a once-prominent crypto hedge fund.
The liquidators have been proactive in converting liquid tokens and NFTs to fiat currency, realizing about $66 million so far. Despite these efforts, the sheer magnitude of the claims, amounting to $3.4 billion, paints a sobering picture of the fund’s financial health. The complex web of legal proceedings, including ongoing litigation with DeFiance Capital and investigations into 3AC’s relationships with entities like Tai Ping Shan, adds to the uncertainty surrounding the fund’s future.
In essence, the freezing of over $1 billion in assets of the 3AC founders marks a significant moment in the cryptocurrency industry’s history. It highlights the risks involved in the crypto market and the repercussions of unregulated financial practices. The road to recovery for the creditors is fraught with challenges, with a long vesting period for the majority of the assets. This case serves as a cautionary tale for the crypto industry, emphasizing the need for more robust risk management and regulatory frameworks to safeguard investors’ interests.
