3AC FOUNDERS REVEAL TIES TO TERRA FOUNDER, BLAME OVERCONFIDENCE FOR COLLAPSE

Last updated: June 19, 2025, 19:17 | Written by: Dan Larimer

The dramatic collapse of Three Arrows Capital (3AC), a once-prominent cryptocurrency hedge fund, sent shockwaves through the digital asset market.After weeks of speculation and unanswered questions, the co-founders, Su Zhu and Kyle Davies, have resurfaced to address the fallout.In a recent interview, they revealed a critical factor contributing to their downfall: a close relationship with Do Kwon, the founder of Terra, and the subsequent overconfidence that blinded them to critical red flags.This admission sheds light on the interconnectedness of the crypto world and the dangers of unchecked faith in even the most seemingly promising projects.Their story serves as a cautionary tale for investors and fund managers alike, highlighting the importance of due diligence, risk management, and a healthy dose of skepticism in the volatile cryptocurrency landscape. 3AC founders reveal ties to Terra founder, blame overconfidence for collapse Posted on J J by RJM The founders of tainted crypto hedge fund Three Arrow Capital (3AC), which filed for bankruptcy in the first week of July, have finally resurfaced after five weeks of no known whereabouts.But what exactly went wrong? 3AC founders reveal ties to Terra founder, blame overconfidence for collapse 2 years ago Su Zhu revealed the 3AC team had close ties to Terra co-founder Do Kwon, which made them overlook many red flags with the project that eventually led to a multi-million dollar loss for the hedge fund.And how did a $50 million yacht fit into the picture? Su Zhu revealed the 3AC team had close ties to Terra co-founder Do Kwon, which made them overlook many red flags with the project that eventually led to a multi-million dollar loss for the hedge fund. The founders of tainted crypto hedge fund Three Arrow Capital (3AC), which filed for bankruptcy in the first week [ ]This article delves into the details of 3AC's collapse, exploring the founders' admissions, their ties to Terra, and the lessons learned from this high-profile failure. 3AC founders reveal ties to Terra founder, blame overconfidence for collapse The founders of tainted crypto hedge fund Three Arrow Capital (3AC), which filed for bankruptcy in the first week of July, have finally resurfaced after five weeks of no known whereabouts.Was it simply overconfidence, or were there other factors at play that sealed 3AC's fate?We explore all of these questions and more below.

The Resurfacing of the 3AC Founders

For five weeks following the bankruptcy filing of 3AC in early July, the whereabouts of Su Zhu and Kyle Davies remained unknown, fueling speculation and concern within the crypto community. At the time of publication, it was unclear where the 3AC founders were located. Related: 3AC founders reveal ties to Terra founder, blame overconfidence for collapse. 3AC filed for a Chapter 15Lawyers representing 3AC's creditors even alleged a lack of cooperation from the founders in the liquidation process. The founders of Three Arrows Capital, or 3AC, the Singapore-based crypto hedge fund with close ties to Terra Labs, have been spending more time engaging on social media In a bankruptcy court hearing, lawyers for 3AC creditors asserted the firm's founders repeatedly fail to engage with liquidators, but weren't shy about talking to the media.Their silence was eventually broken with an interview, where they sought to address the events leading up to the collapse and respond to accusations levied against them.

The Terra Connection: A Fatal Attraction

One of the most significant revelations from the interview was the depth of 3AC's relationship with Terra and its founder, Do Kwon.Su Zhu admitted that the close ties between the two entities led to a critical oversight of potential risks associated with the Terra ecosystem.This close alignment, bordering on unwavering faith, ultimately proved to be a multi-million dollar mistake for the hedge fund.

Overlooking Red Flags: The founders acknowledged that their confidence in Do Kwon and Terra blinded them to warning signs that might have otherwise prompted them to reduce their exposure.
Massive Investment: 3AC held a substantial investment in Terra's LUNA token, which plummeted to near zero when the TerraUSD (UST) stablecoin de-pegged from the US dollar. Su Zhu revealed the 3AC team had close ties to Terra co-founder Do Kwon, which made them overlook many red. Markets One News Page: FridayThis event triggered a cascade of liquidations and ultimately contributed to 3AC's insolvency.
The $500 Million Loss: Zhu explained that 3AC's position in Terra ultimately led to them losing $500 million worth of investment as the ecosystem collapsed around them.

Overconfidence and the Bull Market

Beyond the Terra connection, Zhu and Davies cited **overconfidence** born from years of a thriving bull market as a key factor in their downfall.This period of sustained growth led many lenders to increase their exposure to firms like 3AC, further fueling the cycle of unchecked risk-taking.The founders admitted that they made poor decisions they should have avoided.

The interview revealed a humbling admission of hubris, with the founders acknowledging that their success had bred a sense of invincibility.This overconfidence led to:

Insufficient Risk Management: They failed to adequately assess and mitigate the risks associated with their investments.
Leverage and Borrowing: They took on excessive leverage, borrowing heavily to amplify their returns, which magnified their losses when the market turned.
Poor Decision-Making: This overconfidence led to a series of bad decisions that could have been avoided had they been more cautious and objective.

Debunking the $50 Million Yacht Allegations

Amidst the turmoil surrounding 3AC's bankruptcy, rumors surfaced regarding a $50 million yacht allegedly purchased by the founders shortly before the collapse.Zhu and Davies vehemently denied these allegations, stating that the yacht was purchased over a year prior to the bankruptcy filing. Su Zhu revealed the 3AC team had close ties to Terra co-founder Do Kwon, which made them overlook several red flags with the project that eventually led to a multi-million dollar loss for the hedge fund. The founders of tainted crypto hedge fund Three Arrow Capital (3AC), which filed for bankruptcy in the first week of July, have finally resurfaced after five weeks of no known whereabouts. InThey claimed the timing of the rumors was meant to create a false and damaging narrative. 3AC founders reveal ties to Terra founder, blame overconfidence for collapse PANews ｜ Su Zhu revealed the 3AC team had close ties to Terra co-founder Do Kwon, which made them overlook many red flags with the project that eventually led to a multi-million dollar loss for the hedge fund.This highlights the challenges of managing public perception during a crisis and the potential for misinformation to spread rapidly.

The Bankruptcy Proceedings and Creditor Concerns

The bankruptcy proceedings have been fraught with complications, with lawyers representing 3AC's creditors expressing frustration over the founders' initial lack of cooperation. An anonymous source close to the 3AC debacle reached out to Cointelegraph this week to reveal startling details about the failed hedge fund s remaining assets.While Zhu and Davies have now resurfaced and provided their account of events, questions remain about the full extent of the firm's assets and liabilities.The ongoing legal process will determine the distribution of assets to creditors and may uncover further details about the firm's operations and risk management practices.

Lessons Learned from the 3AC Collapse

The 3AC saga offers several valuable lessons for investors, fund managers, and the crypto community as a whole:

Diversification is Key: Avoid putting all your eggs in one basket. Zhu also revealed their closeness to Terra founder Do Kwon and claimed they believed the firm was going to do big things. He admitted that the firm s closeness to Terra made them overlook certain red flags about the firm, which eventually led to their $500 million worth of investment going to zero. Zhu explained:Diversify your investments across different asset classes and projects to mitigate risk.
Due Diligence is Essential: Thoroughly research any investment before committing capital.Understand the underlying technology, the team behind the project, and the potential risks involved.
Risk Management is Crucial: Implement robust risk management strategies to protect your portfolio from significant losses.This includes setting stop-loss orders, limiting leverage, and regularly rebalancing your portfolio.
Be Wary of Overconfidence: Avoid becoming complacent during bull markets.Remember that market conditions can change rapidly, and past performance is not indicative of future results.
Independent Oversight: Ensure that investment decisions are subject to independent review and oversight to prevent biases and conflicts of interest.
Transparency and Communication: Maintain open and transparent communication with investors and stakeholders, especially during times of uncertainty.

The Ripple Effects on the Crypto Market

The collapse of 3AC had a significant impact on the broader cryptocurrency market, contributing to a period of heightened volatility and uncertainty.The firm's liquidation triggered a chain reaction, as lenders and counterparties faced losses and were forced to reduce their exposure to the crypto sector.This event highlighted the interconnectedness of the crypto ecosystem and the potential for systemic risk.

What Happens Next for Zhu and Davies?

The future remains uncertain for Su Zhu and Kyle Davies.They face ongoing legal challenges related to the bankruptcy proceedings and potential regulatory scrutiny.Their reputation has been severely damaged, and it is unclear whether they will be able to rebuild trust within the crypto community.Their story serves as a reminder of the high stakes involved in the crypto industry and the potential consequences of mismanagement and poor judgment. Coming every Saturday, Hodlers Digest will help you track every single important news story that happened this week. The best (and worst) quotes, adoption and regulation highlights, leading coins, predictions and much more a week on Cointelegraph in one link.Top Stories This Week 3AC founders reveal ties to Terra founder, blame overconfidence for collapseAfter five weeksIt may be years until the legal cases are finalized, and a new clear narrative about 3AC can be constructed.

The Importance of Regulatory Scrutiny

The 3AC collapse has renewed calls for increased regulatory oversight of the cryptocurrency industry. 3AC founders reveal ties to Terra founder, blame overconfidence for collapseRegulators are increasingly focused on addressing issues such as leverage, risk management, and investor protection. After being missing for five weeks, the founders of the scandal-plagued cryptocurrency hedge firm Three Arrow Capital (3AC), which declared bankruptcy in the first week of July, have finally resurfaced. Su Zhu and Kyle Davies, the two founders of the cryptocurrency hedge fund, acknowledged in anThe goal is to create a more stable and transparent market that fosters innovation while protecting consumers from fraud and abuse. Menu. Home; Bitcoin Chart; Cryptocurrency News; Live PricesFinding this balance will be the true challenge for regulators worldwide.

The Future of Crypto Hedge Funds

The 3AC debacle has undoubtedly shaken confidence in crypto hedge funds. The founders of Three Arrows Capital, or 3AC, the Singapore-based crypto hedge fund with close ties to Terra Labs, have been spending more time engaging on social media and news outlets than dealing with its own liquidation, according to bankruptcy lawyers.Investors are now more cautious about entrusting their capital to these firms, demanding greater transparency and accountability.Hedge funds operating in the crypto space will need to demonstrate a strong commitment to risk management and regulatory compliance to attract and retain investors in the future.

How Can Crypto Hedge Funds Rebuild Trust?

Rebuilding trust will take time and effort, but it is essential for the long-term viability of crypto hedge funds.Key steps include:

Enhanced Transparency: Providing investors with detailed information about investment strategies, risk exposures, and performance metrics.
Improved Risk Management: Implementing robust risk management frameworks that are regularly reviewed and updated.
Independent Audits: Undergoing regular audits by reputable third-party firms to ensure compliance with regulatory requirements and best practices.
Strong Governance: Establishing strong governance structures that promote accountability and prevent conflicts of interest.

3AC's Ties to Terra Founder: A Deeper Dive

The relationship between 3AC and Do Kwon extended beyond a mere investment. Su Zhu revealed the 3AC team had close ties to Terra co-founder Do Kwon, which made them overlook many red 3AC founders reveal ties to Terra founder, blame overconfidence for collapse - XBT.Market Market Cap: $2,228,023,155,923.18Su Zhu described it as a close tie, suggesting a level of personal connection and shared vision that clouded their judgment.This close relationship might have influenced their decision-making process, leading them to overlook or dismiss potential warning signs about the Terra project. JPEX staff flee event as scandal hits, Mt. Gox woes, Diners Club crypto: Asia ExpressIt highlights the importance of maintaining objectivity and independence when evaluating investment opportunities, even when dealing with trusted individuals or entities.

Why is this relationship so critical to understanding 3AC's downfall? It highlights the dangers of:

Bias: Personal relationships can create biases that cloud judgment and lead to poor investment decisions.
Lack of Scrutiny: Close ties can discourage critical scrutiny and due diligence.
Groupthink: A shared belief system can stifle dissenting opinions and prevent objective risk assessments.

Did 3AC Founders Withdraw Funds Before the Collapse?

Allegations that the 3AC founders withdrew funds before the company's collapse have also been circulating.Zhu and Davies have denied these claims, stating that they did not pull out money before the bankruptcy. The founders denied any allegations of pulling out money before 3AC went bankrupt and said that the $50 million yacht was bought over a year ago. 3AC founders reveal ties to Terra founder, blameThe bankruptcy proceedings are still ongoing, and further investigations will reveal the truth regarding the movement of funds before the collapse.

What Questions Remain Unanswered?

Despite the founders' interview, several questions remain unanswered:

What were the precise details of 3AC's risk management practices?
Who else within 3AC was aware of the risks associated with Terra?
What steps are being taken to recover assets for creditors?
Where exactly are Zhu and Davies located now?

The bankruptcy proceedings and potential regulatory investigations may shed further light on these unanswered questions in the months to come.

The Role of Leverage in 3AC's Demise

Excessive leverage played a significant role in amplifying 3AC's losses.By borrowing heavily to increase their investment positions, they magnified both their potential gains and their potential losses. The founders denied any allegations of pulling out money before 3AC went bankrupt and said that the $50 million yacht was bought over a year ago.When the market turned against them, the leverage worked against them, accelerating their downfall.This underscores the importance of using leverage cautiously and responsibly.

Best Practices for Using Leverage in Crypto Investing:

Understand the Risks: Fully understand the risks associated with leverage before using it.
Start Small: Begin with small amounts of leverage and gradually increase it as you gain experience.
Set Stop-Loss Orders: Use stop-loss orders to limit your potential losses.
Monitor Your Positions: Regularly monitor your leveraged positions and be prepared to adjust them if necessary.

Terra's Impact on the Wider Crypto Ecosystem

The collapse of Terra and the subsequent downfall of 3AC served as a stark reminder of the interconnectedness and fragility of the crypto ecosystem. BTCUSD Bitcoin 3AC founders reveal ties to Terra founder, blame overconfidence for collapse. Su Zhu revealed the 3AC team had close ties to Terra co-founder Do Kwon, which made them overlook manyTerra's demise triggered a domino effect, impacting other projects and companies that had exposure to the stablecoin or LUNA.This highlighted the importance of understanding the systemic risks within the crypto market and the potential for contagion to spread rapidly.The Terra-Luna collapse revealed a lot about the risks of algorithmic stablecoins. Su Zhu revealed the 3AC team had close ties to Terra co-founder Do Kwon, which made them overlook several red flags with the project that eventually led to a multi-million dollar loss for the hedge fund.These coins rely on complex mechanisms to maintain their peg to a fiat currency, such as the US dollar.When these mechanisms fail, as they did with UST, the consequences can be catastrophic.

Conclusion: A Cautionary Tale for the Crypto World

The story of 3AC serves as a powerful cautionary tale for the cryptocurrency industry.The combination of close ties to Terra, overconfidence stemming from a prolonged bull market, and excessive leverage ultimately proved to be a fatal combination.The founders' admission of overlooking red flags highlights the critical importance of due diligence, risk management, and independent oversight.While the 3AC founders revealed ties to Terra founder, Do Kwon, and blamed overconfidence for the collapse, the entire saga calls for the need for increased regulatory scrutiny and a more mature approach to investing in the volatile world of digital assets.As the crypto market continues to evolve, it is essential for investors and fund managers to learn from the mistakes of the past and prioritize sound risk management practices. In an interview with Bloomberg, the crypto hedge fund s two founders Su Zhu and Kyle Davies admitted that the overconfidence born out of a multiyear bull market, where lenders saw their value swell by virtue of financing firms like 3AC, led to a series of bad decisions that should have been avoided.The lasting impact of 3AC's failure will likely be felt for years to come, shaping the future of crypto hedge funds and the overall regulatory landscape of the industry.Ultimately, the 3AC saga serves as a reminder that even in the innovative and rapidly evolving world of cryptocurrency, fundamental principles of sound financial management still apply.