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 room
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
The book
This entry is one of 111 in the register. The full story, and what it cost the people who lived it, is in Risky Business by Claudia Zeisberger, David Munro and Joanna Reijgersberg-Siew.
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