Three Arrows Capital (3AC), once a prominent player in the cryptocurrency hedge fund industry, has now faced a dramatic downfall. The fund’s collapse was closely tied to the failure of investments in Luna and TerraUSD, resulting in substantial losses for investors and creditors.
Liquidators of Three Arrows Capital are currently pursuing a $1.3 billion lawsuit against TerraForm Labs, a bankrupt digital assets company co-founded by Do Kwon. The liquidators allege that TerraForm Labs manipulated the market for Luna and TerraUSD, leading to artificially inflated prices for these tokens. This alleged manipulation caused 3AC to make heavy investments in these assets, ultimately resulting in significant losses when the tokens collapsed.
The Impact
In January 2022, 3AC acquired $190 million worth of Luna as part of a larger $1 billion deal. However, a massive sell-off of TerraUSD a few months later triggered a sharp decline in both TerraUSD and Luna prices, significantly reducing the value of 3AC’s investment. By May 14, 3AC’s Luna holdings had plummeted from $462 million to just over $2,700, while the value of its other digital assets dropped by about $858 million.
Following the collapse of LUNA and the subsequent downfall of Three Arrows Capital, a British Virgin Islands court appointed liquidators to recover assets and repay creditors. In addition to the lawsuit against TerraForm Labs, the liquidators are also pursuing claims against 3AC’s founders, Su Zhu and Kyle Davies. Zhu, in particular, has been reportedly trying to sell off some of his assets amidst the liquidation process.
TerraForm Labs, which filed for Chapter 11 bankruptcy in January, is currently undergoing liquidation after being found liable for fraud. Co-founder Do Kwon, who was arrested in Montenegro last year, is now facing charges in both the United States and South Korea. The outcome of these legal proceedings remains uncertain, leaving the recovery of funds for Three Arrows Capital’s creditors in question.
The saga of Three Arrows Capital serves as a cautionary tale in the volatile world of cryptocurrency investments. The rapid rise and fall of this once-prominent hedge fund highlight the risks and challenges that investors face in the digital asset market. As the legal battle against TerraForm Labs continues, the full extent of the losses incurred by Three Arrows Capital and its creditors will only become clearer.