The co-founders of the Three Arrows Capital, Su Zhu and Kyle Davies, surface again after five weeks of hiding. They made it known in the interview with Bloomberg that the reason for hiding was nothing but the threats from various corners succeeded the challenge their firm experienced in early July which later bankrupted the creditors and destroy the selloff that foisted steep losses on mom-and-pop owners of Bitcoin and other tokens.
The two founders were talking in an unknown location, analyzing the failure they got and they could trace it to their overconfident. As stated by the advisers in charge of liquidating reported on July 8th how the two founders hadn’t been communicating with them while their location was unknown.
They claimed they’re not talking to the advisors does not imply not talking to the relevant authorities.
“That does not mean that we haven’t been communicating with all relevant authorities,” said Zhu in the telephone interview with Davies and two lawyers from Solitaire LLP. “We have been communicating with them from day one.”
Encounter With Terraform CEO Increases Our Overconfidence Says 3AC Founders
The two founders explained their encounter with the Terraform co-founder which later increased their overconfidence.
“What we failed to realize was that Luna was capable of falling to effective zero in a matter of days and that this would catalyze a credit squeeze across the industry that would put significant pressure on all of our illiquid positions,” Zhu said.
Reflecting on his statement, Zhu stated;
“We began to know Do Kwon on a personal basis as he moved to Singapore. And we just felt like the project was going to do very big things, and had already done very big things,” he said in describing the firm’s miscalculations. “If we could have seen that, you know, that this was now like, potentially like attackable in some ways, and that it had grown too, you know, too big, too fast.”
“It was very much like an LTCM moment for us, like a Long Term Capital moment,” Zhu said. “We had different types of trades that we all thought were good, and other people also had these trades,” Zhu said. “And then they kind of all got super marked down, super fast.”
He went on to say how the Luna collapse affect every other. For instance, the stake Ethereum which was redeemable for 1 ETH after the success of the upcoming proof-of-stake was big time affected.
Co-founder, Zhu stated; “Because Luna just happened, it, it was very much a contagion where people were like, OK, are their people who are also leveraged long staked Ether versus Ether who will get liquidated as the market goes down?” he added, “So the whole industry kind of effectively hunted these positions, thinking that, you know, that because it could be hunted essentially.”
After the incident of Luna Collapse, people find the 3AC financial situation comfortable with the way they were allowed to trade as nothing has occurred.
Falling Of Bitcoin Makes The Matter Worse
According to Zhu, the business kept on going until the breakdown of Bitcoin from $30k to $20k.
“So I just think that you know, throughout that period, we continued to do business as usual. But then yeah, after that day, when, you know, Bitcoin went from $30,000 to $20,000, you know, that, that was extremely painful for us. And that was in, that ended up being kind of the nail in the coffin.”
Zhu also mentioned the major project that really affect the 3AC was the GBTC which allows big investors to buy shares with their Bitcoin.
He added; to Zhu said that “if we were more on our game, we would’ve seen that the credit market itself can be a cycle and that, you know, we may not be able to access additional credit at the time that we need it. If, if it kind of, you know, it hits the fan.”
Davies and Zhu acknowledged heavy losses related to trades in Luna and the now-defunct algorithmic stablecoin TerraUSD, saying they were caught by surprise at the speed of the collapse of these tokens.