Frustration turned to anger for the creditor who foresaw the collapse of the Three Arrows – the defendant
On June 14, concern turned to frustration among executives at crypto firm Deribit.
“As requested before,” Deribit chief commercial officer Luke Striders said in a Telegram group chat, “any sign of life would be appreciated.”
The target of the Strizzers’ ire was Kyle Davis, co-founder of Three Arrows Capital, a $10B crypto hedge fund that was then beginning its death spiral.
Frustration and anger
Earlier in the day, Davis ignored requests from Strygers and other Derbibit executives to provide a status update on a multimillion-dollar loan they owed, according to screenshots of chats released this week.
After three hours, frustration turned to anger.
“You really have to start communicating,” another executive told Davis. “The Deribit legal team is now preparing for the worst, incl [a] Plan to seize your assets and stocks. … Don’t do anything stupid and please communicate.”
Now they have to stand in line.
Deribit, a crypto derivatives exchange based in the Netherlands, is one of 32 creditors named in a 1,157-page document filed in a Singapore court as part of the Three Arrows liquidation. The filings, shared on a website maintained by Three Arrows liquidators, offer the most comprehensive picture yet of the date of Three Arrows’ collapse.
According to the documents, Three Arrows owes at least $3.9B to 32 creditors. The largest creditor is Genesis, a crypto trading and lending company, valued at $2.36B. It has lent money to hedge funds in US dollars secured by the Grayscale Bitcoin Trust, shares of the Grayscale Ethereum Trust, and tokens on the Near and Avalanche blockchains.
But the document suggests more than numbers. They detail the frustration and panic among clients who trusted Davis and his Three Arrows co-founder Su Zhu with their company’s assets.
Moreover, Three Arrows’ creditors doubt that the co-founders are acting in good faith. In requesting Three Arrow’s liquidation, Deribit noted that it had tracked the hedge fund’s blockchain transactions.
Barriers to recovery
In mid-June, while Davis and Zhu ignored calls and messages from creditors, Three Arrows sent millions of dollars worth of cryptocurrency to addresses or associates unknown to the co-founders.
“It was unclear where those funds went next,” said Russell Kruenpler, a liquidator at Teneo, the New York-based firm that hired Three Arrows, in court documents. “The company’s conduct is particularly relevant given that cryptocurrency, by its very nature, is difficult to secure and difficult to recover if it is lost … although fund transfers are traceable on the blockchain, the ease with which they can be transferred and the anonymity of wallet addresses is critical to recovery. creates obstacles.”
Perhaps most outrageously, the couple allegedly put down a down payment on a $50M yacht to take them this summer in Italy.
Perhaps most outrageously, the couple allegedly put down a down payment on a $50M yacht to take them this summer in Italy.
“It is my understanding, too, that Mr. Davis wants this yacht to be bigger than any yacht owned by Singapore’s richest billionaires,” Charles McGarrow, Blockchain.com’s chief strategy officer, said in an affidavit.
As it happens, a three-year-old tweet from Zhu appeared on Twitter in which he joked about everything that happened — bankruptcy, ghosts, liquidity, drama.
“Climate Change Talk Is Cheap,” Zhu Tweet In February 2019, “But sailing the seven seas on your yacht as an international fugitive is expensive.”
Three Arrows did not immediately respond to a request for comment Wednesday.
DeFiance founders had ‘no visibility’ in the three arrow terms: statement
Three Arrows is a Deribit customer, borrower and shareholder, the company’s head of compliance, Jos van Greensven, told the British Virgin Islands High Court in an affidavit dated June 24. Deribit did not immediately respond to a request for comment Wednesday.
On June 11, Three Arrows breached its margin requirements on a trading account at Deribit and defaulted on a total of 1,300 bitcoins and 15,000 ether owed to the company. The two accounts were worth $79 million as of June 20, Van Grinsven said.
Slowly liquidating
Two days later, as per the agreement with Three Arrows, Deribit began gradually closing the hedge fund’s trading account with the permission of Davis and Zhu, according to a screenshot of a Telegram group chat between them. The screenshots were among hundreds of pages of evidence included in court documents released this week.
“Shall I sell about 100btc and 1000th for you a few times per hour?” A man passing by the handle “Sean Derribit” asked a Three Arrows employee. “You can have it too [Davies] or [Zhu] To confirm this method?”
“Allowed,” Davis replied. Then, radio silence.
Several days would pass before Three Arrows co-founder Deribit acknowledged calls or text messages from executives, according to court documents. To add insult to injury, Zhu took to Twitter on June 14 to shut down rumors that he and Davis had gone AWOL.
“We are in the process of communicating with the relevant parties and are fully committed to making this work,” he tweeted.
This did not go well with the Striders.
“We would appreciate being included in this communication process,” he told Davis.
But Deribit executives weren’t the only ones outraged by Zhu’s tweet. Charles McGarrow, Blockchain.com’s chief strategy officer, also referenced the tweet in an affidavit filed June 27 in the High Court of the British Virgin Islands. Blockchain.com did not immediately respond to a request for comment on Wednesday.
“At no time did any 3AC representative attempt to engage with Blockchain.com in good faith about these matters,” McGarrah told the court.
The two companies have had a long-standing relationship — at least by the standards of the fast-moving world of crypto.
Terra Dobka
“In 2019 (and beyond), 3AC holds its own, and [was] Well known in the crypto industry as a leading proprietary trading fund with limited directional bias and a strong balance sheet,” said McGarraugh. “I had no reason to disbelieve it.”
Over the next four years, Three Arrows will borrow — and repay — more than $2B in crypto and fiat currencies.
That changed in May when the Terra blockchain and its associated tokens, Luna and UST, exploded. Three Arrows invested $600M in Terra Tokens — as Davis confirmed in his own June 27 affidavit — and on the morning of May 11, upon moving to Terra Duke, a blockchain.com executive named Scott O’Dell texted Edwards, a Three Arrows employee, to make sure everything was fine. try to do
Zhao insisted that hedge funds would combine freely. Still, O’Dell wasn’t feeling lucky.
“We actually have to change direction here because of all the action and stable flow this week,” O’Dell told Zhao that afternoon, apparently referring to stablecoins. “We have to call again [redacted] its worth [redacted] Debt.”
Zhao’s response, in the two days since the documents were released, has become a meme.
Luna and UST will lose 99% of their value overnight.
O’Dell reached again, this time to Davis. Davis said Three Arrows lost money on Terra, but insisted it wasn’t fatal. He issued an emailed statement confirming this, a statement that McGarr said he “now doubts … was accurate.”
More than a month later, with news outlets reporting that the Three Arrows had missed the margin call, McGarrow tried to call Davis, to no avail.
No transparency
“[H]We’re asking for help if we don’t have clarity on what’s going on,” he later messaged Davis.
The next day, he sent a Zoom link that Davis also ignored.
“Kyle we want to work with you, but it’s hard when you don’t pick,” he said.
Overwhelmed with demands
Deribit and blockchain.com joined forces last month to initiate liquidation proceedings against Three Arrows in the High Court of the British Virgin Islands. Three Arrows did the same, saying it was “overwhelmed by demands and/or questions from its lenders and investors.”
In his affidavit, Davis said the sequence of events was simple. With its $600M in Luna, Three Arrows suffered a “rapid downward spiral” stemming from Terra’s explosion and “precipitous economic inflationary malaise”.
“Although [Three Arrows] Initially able to meet these margin calls,” he continued, “later it was unable to meet all margin calls when lenders responded. extensively“
‘There is no possibility of any restructuring of TACL. It is hopelessly bankrupt.’
Kyle Davis in an affidavit
For a moment last week, it looked as if the mysterious co-founders might collaborate after all. Kind of.
That morning, Zhu took to Twitter for the first time in nearly a month and shared an email his attorney had sent to Crumpler.
“Consistent with our clients’ desire to work reasonably with you, our clients have attached a spreadsheet detailing the company’s assets during this short period of time,” attorney, Christopher Anand Daniel, of Singapore-based Advocates Law LLP, wrote. “In the interest of time, our clients are providing these on a rolling basis and will continue to work to restore details of other assets.”
If only.
The spreadsheet lacked detail, according to a source familiar with the matter, who believed Zhu and Davis were less helpful than they were led to believe.
Still, there are things both sides can agree on.
“There is no possibility of any reorganization of TACL,” Davis said in his affidavit. “It’s hopelessly bankrupt.”
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