According to 3AC co-founder Kyle Davies, the failure of Three Arrows Capital was not the result of the Luna collapse. Instead, the firm’s last investment was liquidated on FTX.
On a podcast with hedge fund manager Hugh Hendry, Davies explains how the hedge fund unraveled. He stated that the fund survived the collapse of Luna, the accompanying credit crisis, and the decrease in crypto values, only to succumb when it was liquidated by FTX.
He further meaningful that FTX and Alameda communicated internal information and that the trading business was aware of its liquidation level and actively pursued it.
He said that a larger effect came when credit was tightened across the crypto community and lenders began canceling loans, 3AC refunded all loans sought during that time period.
“So for me it was a hit. I put $200 million in, it went up to and then went to zero. So it was a hit, but I was a $4-plus-billion fund so it wasn’t an enormous hit.”
At the same time, the overall crypto market suffered a significant drop in pricing. however, he stated that this was not a major issue and that the corporation did not need to file for liquidation.
“For me, it was OK, still at that point. We were hurt but we were still alive.”
Only after all of this was 3AC brought to its knees. This was due to one of its holdings on FTX being liquidated while it was still operating.
In addition to Kyle Davies, Zhu Su, also a co-founder of 3AC, also voiced outright criticism of the former FTX CEO, saying that it was FTX and Alameda that “swallowed” the hedge fund that led to its demise.
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