How Crypto Assets Geniuses Vaporized One Trillion Dollars

This luxurious yacht is impressive: weighing about 500 tons, its 171-foot hull made of glass and steel is as white as new, and it features a transparent-bottom swimming pool on the deck. This $50 million yacht was originally scheduled for delivery in July, when it will watch the sunset in Sicily or enjoy cocktails on the lush beaches of Ibiza. The yacht's soon-to-be captain boasted photos to friends at a party, bragging that it "is larger than all the yachts owned by the wealthy in Singapore" and plans to install a projection screen in the cabin to showcase a collection of NFT artworks.

This super yacht worth $150 million is the largest yacht sold in Asia by the renowned Italian shipyard San Lorenzo, representing a celebration of a group of Crypto Assets millionaires. "This marks the beginning of an exciting journey," the yacht broker said in last year's auction announcement, "looking forward to witnessing many joyful moments on board." The buyer has given this yacht a name that reflects crypto culture and is interesting enough - Much Wow.

The buyers are two Andover University graduates, Su Zhu and Kyle Davies, who run a Singapore-based Crypto Assets hedge fund called Three Arrows Capital. However, they ultimately failed to pop champagne on the deck of Much Wow for a celebration. In July of this year, the same month the yacht was set to be delivered, the two filed for bankruptcy and went missing, failing to pay the final installment, which left the yacht stranded at a berth on the Italian coast. Although the yacht has not yet officially been listed for resale, news of this luxury yacht has already begun to circulate within international superyacht dealer circles.

Since then, this yacht has become an endless meme and a topic of conversation on Twitter. From numerous small-scale Crypto Assets holders to industry professionals and investors, almost everyone was shocked or dismayed to witness the collapse of Three Arrows Capital - a firm once regarded as a thriving leader in the global financial industry. The company's bankruptcy triggered a chain reaction, leading not only to a historic sell-off of Bitcoin but also to the "destruction" of much of the Crypto Assets industry's "gains" over the past two years.

Several crypto companies in New York and Singapore are direct victims of the Three Arrows Capital collapse. The New York-based publicly traded crypto exchange Voyager Digital, once valued at billions of dollars, filed for bankruptcy protection in July, disclosing that Three Arrows Capital owes it over $650 million. Genesis Global Trading provided a $2.3 billion loan to Three Arrows Capital. The early crypto company Blockchain.com offers digital wallets and has developed into a large exchange; Three Arrows Capital has yet to repay its $270 million loan, and the company has laid off a quarter of its staff as of the time of writing.

The sharpest observers in the Crypto Assets industry generally believe that Three Arrows Capital bears significant responsibility for the 2022 round of the Crypto Assets crash. Market chaos and forced selling led to a drop of 70% or more in digital assets like Bitcoin, with over one trillion dollars in value evaporating. FTX CEO Sam Bankman-Fried stated, "An estimated 80% of the reasons for this crash can be attributed to the collapse of 3AC." FTX has recently rescued several bankrupt lenders, and he may understand these issues better than anyone else. "It's not just 3AC that had problems; it's just that their scale far exceeds anyone else's. Because of this, they gained more trust within the entire Crypto Assets ecosystem, ultimately leading to more severe consequences."

For a company that has always emphasized trading only with its own funds - "We have no external investors," said 3AC CEO Su Zhu in an interview in February this year - the devastation caused by the collapse of Three Arrows Capital is shocking. As of mid-July, the amount of creditor claims filed has exceeded $2.8 billion, and this may just be the tip of the iceberg. From well-known fund lenders to wealthy individual investors, it seems that everyone in the crypto space has lent digital currencies to 3AC, including 3AC's own employees, who deposited their salaries into the company's proprietary 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 may have been ruined because of it, with many having given them money."

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

Meanwhile, the unclaimed yacht seems to have become an absurd embodiment of the arrogance, greed, and recklessness of the company's 35-year-old co-founder. As their hedge fund is currently undergoing a chaotic liquidation process, Su Zhu and Davies are currently hiding. For an industry that is constantly defending itself, Crypto Assets 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 "skeptics'" viewpoint.

Su Zhu and Davies are two ambitious young individuals who are very intelligent and well aware of the structural opportunities in digital currency: Crypto Assets is a game of creating virtual wealth out of thin air and convincing others of its value. They insist that this virtual wealth should translate into real-world wealth. They build credibility by shaping the image of billionaire financial geniuses on social media, transforming it into actual financing capabilities, and then using billions of dollars in loans for speculative investments, leveraging their influential platforms to boost the success of these investments. Unknowingly, they, posing as billionaires, grow into actual billionaires capable of purchasing super yachts. They navigate forward, seemingly always managing to execute plans perfectly, until suddenly everything collapses.

In 2005, Su Zhu and Davies were seniors at Andover University. Su Zhu and Kyle Davies met at Phillips Academy in Andover, Massachusetts, which is known for having many students from wealthy families, but Su Zhu and Davies grew up in relatively ordinary environments 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 also not particularly popular. "They were both called weird, especially Su," a classmate said. "In fact, they are not weird at all - just a bit shy."

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

Davies is also a standout on campus, but his classmates see him as an outsider in other respects - if they remember him at all. As a student who loves Japanese culture, Davies graduated with the highest honors in Japanese. According to Davies, he and Su Zhu weren't 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 episode of a crypto podcast. "We were never the best of friends. I didn't know much about him in high school. I knew he was a smart guy - he was the valedictorian of our class - but in college, we had more interactions."

"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, while Davies subsequently interned there. 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 platform in Singapore called Flow Traders.

At Flow Traders, Su Zhu learned the art of arbitrage - trying to capture small changes in relative value between two related assets, usually selling overpriced assets and buying underpriced assets. He focused on trading exchange-traded funds (, 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 new confidence. It is well-known that he would openly criticize the performance of his colleagues, even blaming his boss. Su Zhu stood out in another way: the Flow office was filled with servers, it was hot, and he would come to work in shorts and a T-shirt, then take off his shirt, not even bothering to dress properly while walking through the building's hall. "Su would walk around shirtless 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 at Deutsche Bank for a while, following in the footsteps of crypto legend and billionaire co-founder of BitMEX, Arthur Hayes. Davies stayed at Credit Suisse, but at that time both were tired of the big bank life. Su Zhu complained to acquaintances about the low quality of his bank colleagues, who caused the company to lose money in trading without any consequences. In his view, the best talent had either left the hedge funds or started their own ventures. He and 24-year-old Davies decided to start their own platform. "There was almost no downside to leaving," Davies explained in an interview last year. "It's like, if we left and really messed things up, we would definitely find another job."

In 2012, Su Zhu and Davies temporarily resided in San Francisco, pooling their savings and borrowing money from their parents to raise approximately $1 million in seed funding for Three Arrows Capital. The name comes from a Japanese legend in which a distinguished daimyo or warlord teaches his sons to distinguish between trying to break a single arrow - effortlessly - and trying to break three arrows together - impossible.

Davies mentioned on the UpOnly podcast that their funds doubled in less than two months. The two quickly headed to Singapore, which has no capital gains tax, and by 2013, they registered the fund there, planning to renounce their US passports to become Singaporean citizens. Su Zhu is fluent in both Chinese and English, and he navigates Singapore's social scene with ease, occasionally hosting poker games and friendly matches with Davies. However, they seem frustrated by their inability to take Three Arrows Capital to the next level. During a dinner around 2015, Davies lamented to another trader how difficult it was to raise funds from investors. The trader was not surprised - after all, neither Su Zhu nor Davies had a prominent background or much of a performance record.

In this early stage, Three Arrows Capital focused on a niche market: arbitrage in emerging market foreign exchange ( or "FX" ) derivatives - financial products linked to the future prices of smaller coins ( such as the Thai Baht or Indonesian Rupiah ). Arthur Hayes recently wrote in an article that entering these markets requires building strong trading relationships with large banks, which is "almost impossible." "When Su and Kyle told me how they got started, I was impressed by how quickly they were able to enter this lucrative market."

At that time, foreign exchange trading was shifting to electronic platforms, making it easy to spot discrepancies or spreads between quotes from different banks. Three Arrows Capital found the optimal position to engage in arbitrage trading in cases of price mispricing, usually making just a few cents per dollar traded. This is a strategy that banks despise - Su Zhu and Davies were essentially seizing profits that these institutions would have retained. Sometimes, when banks realize they have given Three Arrows Capital the wrong price...