Failed 2022

    Three Arrows Capital (3AC)

    Borrowed conviction blows up faster than borrowed capital. Concentrated leveraged bets on reflexive assets are not "risk management."

    TL;DR — Failure Post-Mortem

    Three Arrows Capital (3AC) was a Crypto Hedge Fund startup founded in 2012 in Singapore. It raised $10B AUM before collapsing in 2022 — 10 years of runway burned. IdeaProof's AI Failure Score: 90/100, driven by leverage + terra/luna contagion. The shutdown affected employees, investors, and the broader Crypto Hedge Fund ecosystem. This case study breaks down the timeline, root causes, competitors that won, and replicable lessons for founders validating similar ideas today.

    Why did Three Arrows Capital (3AC) fail?

    Three Arrows Capital (3AC) failed in 2022 after 10 years of operation, losing $10B AUM in raised capital. The root cause was leverage + terra/luna contagion. Key lesson: Borrowed conviction blows up faster than borrowed capital. Concentrated leveraged bets on reflexive assets are not "risk management."

    Verifiable facts
    Sourced
    Founded → Closed

    2012 → 2022

    Funding Raised

    $10B AUM

    Industry

    Crypto Hedge Fund

    Country

    Singapore

    IdeaProof AI Failure Score

    90/100
    Market Fit Risk
    70
    Burn Rate Risk
    30
    Founder Risk
    92

    What Happened: The Timeline

    🚀

    2012

    Three Arrows Capital founded by Su Zhu and Kyle Davies

    📈

    2021

    AUM peaks near $10B; major positions in LUNA, GBTC, stETH

    📉

    May 2022

    Terra/Luna collapse wipes out LUNA position

    💀

    Jun 2022

    Defaults on loans; BVI court orders liquidation

    💀

    Sep 2023

    Su Zhu arrested in Singapore

    Root Causes

    Excessive Leverage
    Concentrated Risk
    Terra Contagion
    Counterparty Cascade

    Three Arrows Capital, founded by Su Zhu and Kyle Davies, peaked at ~$10B AUM and was one of crypto's most respected hedge funds. The strategy depended on heavy leverage, large concentrated positions (including ~$200M in LUNA and a leveraged stETH trade), and borrowed capital from across the lending ecosystem. The May 2022 Terra/Luna collapse vaporized 3AC's LUNA position. Margin calls cascaded; 3AC defaulted on loans from Voyager, Genesis, BlockFi, and others, triggering the broader 2022 crypto contagion. A British Virgin Islands court ordered 3AC into liquidation in June 2022; Su Zhu was arrested in Singapore in 2023. Court-appointed liquidators are still chasing assets.

    Causal Chain

    Derived · heuristic

    This is our reading of the causal chain — separated from the verifiable facts above. Timeline dates, funding numbers and filings are facts (see methodology); root / proximate / terminal attribution is judgement based on public evidence.

    Root cause

    A combination of demand-side, execution, and capital-market pressures that this record documents without isolating a single dominant driver.

    Contributing factors
    • Excessive Leverage
    • Concentrated Risk
    • Terra Contagion
    • Counterparty Cascade
    Terminal event

    Sep 2023: Su Zhu arrested in Singapore

    Base rates

    External sources

    A single failure is an anecdote. These base rates give you the denominator — how common this outcome is across all startups matching Three Arrows Capital (3AC)'s profile. Sources are third-party; we do not restate them as our own claims.

    ~80%
    industry

    of crypto/Web3 projects launched in the 2021 cycle were inactive or delisted within 24 months of peak market cap.

    CoinGecko + Nansen dataset analysis (2023)
    ~90%
    all

    of startups ultimately fail — including ~10% that fail in the first year and the rest across the following decade.

    Startup Genome / CB Insights aggregate (2024)
    ~35%
    all

    of new US employer businesses survive past their 10th year (Bureau of Labor Statistics BED series).

    US Bureau of Labor Statistics — BED (2024)
    ~35%
    stage

    of Series A rounds ever graduate to Series B; the rest run out of runway or pivot without a follow-on.

    CB Insights Venture Capital Funnel (2023)

    Frequently Asked Questions

    Sources & Confidence

    Every data point is tagged with its source type and our confidence in it. How we grade sources.

    Additional references
    Financial Times
    Wikipedia

    Could This Failure Have Been Prevented?

    IdeaProof's AI validates market demand, competitive positioning, and business model viability in minutes — catching the exact issues that sank Three Arrows Capital (3AC).

    Spotted a factual error?

    Approved corrections are published in the public changelog with attribution.

    After Three Arrows Capital (3AC): hubs, comparisons and deep dives

    Compare the validation, funding and go-to-market choices that separate survivors from failures like Three Arrows Capital (3AC).