Risk register · entry
Q4 · Where models dieThree Arrows Capital
One over-levered fund defaulted and cascaded through every crypto lender.
The world stops matching the model. Regime change and leverage turn a small error fatal.
Why this quadrant
The strategy paid off as a simple, near-linear carry trade for years, but its true payoff function was fat-tailed and correlated: once LUNA and stETH broke, the loss was neither small nor containable, moving the event from the safe, simple-payoff quadrants into Q4's complex, tail-dominated territory.
The record
- 3AC assets under management peaked near $10 billion (Nansen estimate, March 2022); fund itself claimed an $18 billion NAV at pointslikely
- ~$200 million invested in LUNA tokens (February 2022)likely
- LUNA collapsed to near zero in May 2022certain
- BVI court ordered liquidation on June 27, 2022certain
- Total creditor claims ~$3.5 billion (some reports: 154 claims totaling $3.4 billion)certain
- Genesis Asia Pacific owed ~$2.3 billion, the largest single creditorlikely
- Voyager Digital owed $665 million (some reports cite $650 million)likely
- Total fund losses exceeding $4.2 billion across 2021-2022likely
- Crypto total market cap fell roughly 48% over May-June 2022likely
- Su Zhu arrested September 29, 2023 at Changi Airport; sentenced to four months for non-cooperation with liquidatorslikely
- Liquidators seeking to recover $1.3 billion from founders Davies and Zhulikely
Sources
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