Exploring the downfall of Three Arrows Capital (3AC), a cryptocurrency fund managing billions of dollars, following the collapse of the Earth/Moon ecosystem and cryptocurrency markets, leading to the inability to meet financial obligations.
The cryptocurrency fund that failed in June of last year was Three Arrows Capital (3AC). The fund managed up to $10 billion in assets, but after the implosion of the Earth/Moon ecosystem and the collapse of the cryptocurrency markets, it was no longer able to pay out all of its debtors.
The Three Arrows Capital co-founder
Together with Zu Shu, Kyle Davies co-founded Three Arrows Capital, and the two are currently working on the OPNX project.
The control of 3AC is now in the hands of bankruptcy trustees, who recently submitted paperwork to the New York court that would explicitly accuse Kyle Davies of contempt of court.
In fact, Davies was had to answer to a subpoena in order to reveal details on the demise of 3AC.
Instead, he did not show up and disregarded the subpoena.
In addition to calling for him to be found in contempt of court, the accusers want him to pay a $10,000 fine for every day he is late.
The material provided by Three Arrows Capital’s attorneys also mentions Davies’ opulent Bali lifestyle, which is made possible by the significant revenues from managing the fund.
Therefore, it is likely that the founders of 3AC continued to profit well enough to maintain a luxurious lifestyle while the company wasted the money of its creditors (customers and investors).
Additionally, they are currently refusing to work with law enforcement while they look for resources to repay creditors’ money.
It is important to note that the judge in charge of the case, Martin Glenn, intimidated Davies into appearing on April 13 by ordering him to comply with the subpoena back in March.
3AC’s liquidators claim that he has disregarded this directive and made no effort to react.
However, Davies keeps tweeting and responding on Twitter, making fun of people who point out that he needs to find the money to pay his creditors.
The 8th of August is the day set for the hearing to address the “contempt charge.”
Three Arrows Capital’s failure to pay its debts
The misuse of user cash was the root of the issue, just as it was with FTX and Alameda Research.
The money that users and investors deposit on exchanges or in crypto funds should, in theory, be held away and used solely to make investments with the users’ approval or as a reserve to pay for any potential withdrawal demands.
Instead, businesses were using these funds much like internal, company funds. They were able to steal substantial sums from them covertly since they had raised a sizable amount of money from consumers and investors.
The issue is that these monies were no longer there when people started to demand it in large numbers since the corporations had already spent it as if they were their own.
Evidently, in both instances, they had not only been spent, but had also been wasted in order to allow the founders to live extravagant lives.
As a result, today’s Kyle Davies, Zu Shu, Sam Bankman-Fried, and Caroline Ellison are much wealthier than they were yesterday, while their users are lot poorer.
Simply said, a large chunk of the consumers’ funds have now ended up in their possession, ultimately for little to nothing.
The insolvency process
After the bankruptcy was declared discharged, a court appointed bankruptcy trustees, who are now faced with the difficult duty of recovering as much money as they can for the benefit of the creditors.
As a result, the companies are no longer owned by the founders but rather by bankruptcy trustees appointed by the court.
They very likely won’t be able to raise enough money to pay off all of the creditors’ debts in full, and the process might drag on for years.
The founders and directors of the companies are the primary defendants in several other lawsuits that are ongoing to determine responsibility, guilt, and potential penalty for individuals who caused the issue.
Although it may seem impossible for creditors to recover all of their money, it is much more probable that those involved will be found and punished, even if it takes some time.
In the meanwhile, it is hoped that new restrictions will be implemented for individuals who manage other people’s cryptocurrency holdings, preventing them from disposing of their users’ funds at will.