How Crypto Assets Geniuses Evaporated Trillions of Dollars

On a sunny day in Singapore, an astonishing superyacht is under construction. This 171-foot giant is made of glass and steel, pure white as new, comparable to the beauty of Santorini. The yacht is also equipped with a glass-bottom swimming pool. This $50 million yacht is set to be completed in July, at which time it will be the perfect companion for sunset dinners in Sicily and cocktail parties on the turquoise beaches of Ibiza. The yacht's prospective captain boasts photos to friends at the party, bragging that it "is bigger than all the billionaires' yachts in Singapore" and describes plans to decorate the cabin with a projector to showcase NFT artworks.

This $150 million superyacht is the largest yacht sold in Asia by the renowned shipbuilder Sanlorenzo, representing the luxurious lifestyle of the new wealthy in the Crypto Assets world. "This marks the beginning of an exciting journey," the yacht broker stated in last year's auction announcement, "looking forward to witnessing many joyful moments on board." The buyer named the vessel something that reflects the crypto culture and is also fun—Much Wow.

The buyers of the yacht are two graduates of Andover University, Su Zhu and Kyle Davies, who run a Singapore-based crypto hedge fund called Three Arrows Capital. However, they did not wait for the moment to pop champagne at the bow of Much Wow to celebrate. Instead, in July of this year, the same month the yacht was set to launch, the two filed for bankruptcy and went missing, leaving the boat stranded at the dock in La Spezia, Italy. Although the yacht has not been officially listed for sale, the presence of this luxury yacht has already emerged in the international superyacht dealer circles.

Since then, the yacht has become an endless meme and gossip topic on social media. From millions of retail crypto investors to industry insiders, almost everyone has witnessed the collapse of Three Arrows Capital—once regarded as one of the most respected investment funds in the thriving global financial industry. The company's bankruptcy triggered a chain reaction that not only led to a historic sell-off of Bitcoin but also "destroyed" many of the achievements the crypto industry had made over the past two years.

Many crypto companies in New York and Singapore are direct victims of the collapse of Three Arrows Capital. The New York crypto exchange Voyager Digital, once valued at billions of dollars, filed for bankruptcy protection in July, stating that Three Arrows Capital owes it over $650 million. Genesis Global Trading provided a $2.3 billion loan to Three Arrows Capital. Early crypto company Blockchain.com stated that Three Arrows Capital has $270 million in loans outstanding, and the company has laid off a quarter of its staff.

Observers in the crypto industry generally believe that Three Arrows Capital bears significant responsibility for the 2022 crypto crash. Market turmoil and forced liquidations led to Bitcoin and other digital assets plummeting by 70% or more, with over a trillion dollars in value evaporating. FTX CEO Sam Bankman-Fried stated: "This round of decline is estimated to be 80% attributable to the collapse of 3AC." FTX has recently rescued several bankrupt lending institutions, and he may understand these issues better than anyone else. "It's not just 3AC that has problems; it's just that they did it on a larger scale than others. Because of this, they gained more trust within the entire crypto ecosystem, ultimately leading to more severe consequences."

For a company that has always claimed to invest only its own funds, ( CEO Su Zhu stated in an interview this February, "We have no external investors" ). The damage caused by the collapse of Three Arrows Capital is shocking. As of mid-July, the total claims filed by creditors have exceeded $2.8 billion, and this may just be the tip of the iceberg. From well-known fund lenders to wealthy individual investors, everyone in the crypto space seems to have lent digital currency to 3AC, including 3AC's own employees, who deposited their salaries into the company's platform to earn interest. "Many people feel disappointed, and some feel embarrassed," said Alex Svanevik, CEO of blockchain analytics firm Nansen. "They shouldn't have done this, as many people's lives could be ruined because of it; many people gave them money."

These funds now seem to have disappeared, along with the assets of several affiliated funds and part of the funds from various crypto assets projects managed by 3AC. The true scale of the losses may never be determined, and for many crypto startups that have deposited funds with the company, publicly disclosing this relationship may face increased scrutiny from investors and regulators.

Meanwhile, the abandoned yacht seems to have become a ridiculous symbol of the arrogance, greed, and recklessness of the company’s 35-year-old co-founder. As the hedge fund is in the midst of a chaotic liquidation process, Su Zhu and Davies are currently in hiding. For an industry that constantly defends itself, crypto practitioners have been trying to prove from day one that this is not a scam, but Three Arrows Capital seems to have single-handedly validated the "opponent's argument."

Su Zhu and Davies are two ambitious young individuals who are very intelligent and well-versed in the structural opportunities of digital currency: Crypto Assets are a game of creating virtual wealth out of thin air and persuading others to accept it. They insist that this virtual wealth should be converted into real-world wealth. They build credibility by playing the role of billionaire financial geniuses on social media, transforming it into actual financial credit, and then borrowing billions for speculative investments, leveraging their influential platforms to boost success. Unbeknownst to them, the pretended billionaires grew into real billionaires capable of purchasing super yachts. They fumble forward, but seem to perfectly execute their plans until the day of reckoning suddenly arrives.

Su Zhu and Kyle Davies met at Phillips Academy in Andover, Massachusetts. It is well known that many students in Andover come from wealthy or prominent families, but Su Zhu and Davies grew up in relatively ordinary circumstances in the Boston suburbs. "Neither of our parents were wealthy," Davies said in an interview last year. "We are very middle-class people." They were not particularly popular at school either. "They were both considered weird, especially Su," a classmate said. "Actually, they are not weird at all, just a bit shy."

Su Zhu, a Chinese immigrant who came to the United States with his family at the age of 6, is known for his perfect GPA and outstanding AP course performance; in the graduation yearbook, he received the highest honor of "Most Diligent." His achievements in mathematics earned him a special award, but he is not just a mathematics expert—he also received Andover's highest award for fiction upon graduation. "Su is the smartest person in our class," recalled a classmate.

Davies is also a campus star, but his classmates see him as an outsider in other respects—if they even remember him. As an emerging Japanese learner, Davies graduated with the highest honors in Japanese. According to Davies, he and Su Zhu were not particularly close at the time. "We went to high school together, went to college together, and found our first job together," he said in a 2021 crypto podcast. "We were never the best of friends. I didn't know him very well in high school. I knew he was smart—he was our class valedictorian—but in college, we had more communication."

"Going to college together" refers to Columbia University, where they both chose mathematics courses and joined the wall ball team. Su Zhu graduated a year early with excellent grades and then moved to Tokyo to work in derivatives trading at Credit Suisse, where Davies subsequently interned as well. Their desks were next to each other until Su Zhu was laid off during the financial crisis, after which he joined a high-frequency trading firm in Singapore called Flow Traders.

At Flow Traders, Su Zhu learned the art of arbitrage—attempting to capture small changes in relative value between two related assets, typically selling overvalued assets and buying undervalued ones. He focused on trading ETFs (, which are essentially mutual funds listed like stocks ), buying and selling related funds to earn slim profits. He excelled in this area, ranking high in Flow's profitability standings. This success gave him a new sense of confidence. It is well known that he would speak candidly about his colleagues' performances and even criticize his boss. Su Zhu stood out in another way: the Flow office was filled with hot servers, and he would come to work in shorts and a T-shirt, then remove his top, even walking through the building's hallways without putting on proper attire. "Su would walk around bare-chested in his mini shorts," recalled a former colleague. "He was the only one who would take off his shirt to trade."

After Flow, Su Zhu worked for a while at Deutsche Bank, following in the footsteps of crypto legend and BitMEX co-founder billionaire Arthur Hayes. Davies stayed at Credit Suisse, but by then both were tired of life at big banks. Su Zhu complained to acquaintances about the low quality of his banking colleagues, who caused the company to lose money in trades without any consequences. In his view, the best talent had left hedge funds or started their own ventures. He and 24-year-old Davies decided to start their own company. "There was almost no downside to leaving," Davies explained in an interview last year. "It's like, if we left and really messed up, we could surely find another job."

In 2012, Su Zhu and Davies temporarily stayed in San Francisco, where they pooled their savings and borrowed money from their parents to raise about $1 million in seed funding for Three Arrows Capital. The name comes from a Japanese legend where an outstanding daimyo teaches his sons that it is easy to break a single arrow, but impossible to break three arrows at the same time.

Davies mentioned in a podcast that their funds doubled in less than two months. The two quickly traveled to Singapore, which has no capital gains tax, registered the fund there in 2013, and planned to renounce their U.S. citizenship to become Singaporean citizens. Su Zhu is fluent in both Chinese and English and fits in well in Singapore's social circles, occasionally hosting poker games and friendly matches with Davies. However, they seem frustrated that they couldn't take Three Arrows Capital to the next level. At a dinner around 2015, Davies lamented to another trader about how difficult it was to raise funds from investors. The trader wasn't surprised—after all, both Su Zhu and Davies lacked a prominent background and didn't have much of a performance record.

At this early stage, Three Arrows Capital focused on a niche market: arbitrage in emerging market foreign exchange derivatives—financial products linked to the future prices of smaller currencies like the Thai Baht or Indonesian Rupiah (. Hayes from BitMEX recently wrote in an article that entering these markets depends on establishing strong trading relationships with major banks, and that entering these markets is "almost impossible." "When Su and Kyle told me how they got started, I was impressed by their rush into this lucrative market."

At that time, foreign exchange trading was shifting to electronic platforms, making it easy to spot differences or spreads between quotes from different banks. Three Arrows Capital found its optimal position by trading in cases of price errors and "picking" them, often earning just a few cents for every dollar traded. This is a strategy that banks despise—Su Zhu and Davies were essentially siphoning off the funds that these institutions would have kept. Sometimes, when banks realized they had quoted the wrong price to Three Arrows Capital, they would request to amend or cancel the trade, but Su Zhu and Davies would not concede. Last year, Su Zhu posted a photo on social media of himself smiling in front of 11 screens from 2012. He seemed to reference their foreign exchange trading strategy of picking bank quotes, writing, "Until you are in.