Crypto Bros Were Born to Run

Crypto Bros Were Born to Run
15 July 2022

Three Arrows Capital (3AC) is no more. The founders look to have vanished. To quote from the court filings:

The physical whereabouts of the Debtor’s founders, Zhu Su and Kyle Livingstone Davies (the “Founders”), are currently unknown, and while a lawyer in Singapore purporting to represent the Founders recently approached the Foreign Representatives, the Founders have not yet begun to cooperate with the Foreign Representatives in any meaningful manner.

This is a bad look. These two guys had a lot of money, or at least access to a lot of someone’s money, for quite a while. And they didn’t just disappear. Their conduct is borderline trolling of the legal system:

On the introductory Zoom call, counsel from Advocatus stated that the Founders intended to cooperate with the Foreign Representatives… While persons identifying themselves as “Su Zhu” and “Kyle” were present on the Zoom call, their video was turned off and they were on mute at all times with neither of them speaking despite questions being posed to them directly.

One does not need a law degree to figure out that sort of conduct won’t ingratiate you with the judge. And folks who have taken over the fund in insolvency are not mincing words with their concerns about the honesty and reliability of the former managers:

The Foreign Representatives now file this Motion seeking provisional relief to
mitigate the risk of transfers or disposals of the Debtor’s assets by parties other than the Foreign
Representatives and authorize discovery narrowly targeted at obtaining fundamental information
about the assets of the Debtor.

That is, by court-papers standards, a pretty bald statement that they don’t trust these guys to not run off with the assets.

Let’s just step back a second and survey what has happened. These two childhood friends started a fund together and made some not-insignificant amount of money relatively quickly. Whether it was all theirs or only some of it does not really matter. By the standards of 99.99% or more of the world’s population they were unimaginably wealthy.

They also routinely messaged externally that they were obsessed with risk management. One of Zhu Su’s most famous tweets will surely forever be:

Those who do not manage their risk will have the market manage it for them.

Zhu Su, 27 November 2021

It’s almost too perfect, like a comedy version of LTCM redone as a Seinfeld episode. They went down in flames while trying to maintain what were widely reported to be large subsequently liquidated positions.

And now they’re on the run.

These guys will get blamed for many things, not all of which will turn out to be their fault. People talk about “Lehman” moments and often refer to specific institutions or actors when in reality which cog broke was random and the machine was going to fail anyway.

So, in the spirit of the funeral scenes from The Royal Tenenbaums and The Big Lebowski, here’s a little funeral music to celebrate the life of Three Arrows Capital.

Live shot of Three Arrows Capital on the way to trading Valhalla.

In the day we sweat it out in DeFi
Some runaway hedge fund dream
All night we trade from tax-shielded houses
Over levered machines
Sprung from cages at Credit Suisse
Un-doxxed, un-margined, and tradin’ right up to the line
Oh, crypto ripped the bags from our hands
Twas a leverage trap, we got rekt on a gap
We gotta get out while we’re young
‘Cause degens like us, ser, we were born to run
Yes, ser, we were

Sammy, let us in, we wanna be your friend
We wanna guard your fund and exchange
Just send some coins to these brand-new wallets
And call off the reking bots
Together we can right this ship
We’ll run ’til we make it, ser, we’ll never go back
Oh, will you meet with us down in Miami?
‘Cause, Sammy, we’re just scared and lonely traders
But we gotta know how it feels
We want to know if Tether’s backed
Sam, we want to know is any of this real
Oh, can you show us

After our default, lawyers started comin
Screamin’ fud all o’er Twitter
Anons tradin their rearview mirrors
And the haters came down so hard
Many lenders dark, their capital all’s parked
Scared Apes read Telegram in a daze
We wanna merge with you, Sammy, on-chain tonight
With a multi-sig transfer

This market’s full of broken heroes
On a last chance 10 x long
Everybody’s tryin’ a repay loans
Cause there’s no place left to hide
Together, Sammy, we can handle this madness
Launchin’ a DAO backed by sadness in our souls
And, someday, ser, still don’t know when
We’re gonna get you those coins
Then you’ll see a top 12 audit in the sun
But ’til then, longs like us
Sers, we’re on the run

Oh anon, degens like us
Frens, we were born to run
Come on with us, fools like us
Gn, we’ve got to run

Read more: Celsius & Euro Pacific as Spiritual Twins

Jon Reiter
Jon Reiter

Jon is a long-time derivative trader and quant that’s done both modelling and market-making work in New York, London, Tokyo and Singapore. Lately he’s applying traditional finance techniques in the blockchain space.

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