Home / Three Arrows Capital (3AC) Founders Reveal ‘Shadow Recovery Plan’: What does it Mean for Creditors?
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Three Arrows Capital (3AC) Founders Reveal ‘Shadow Recovery Plan’: What does it Mean for Creditors?

Published July 4, 2023 12:05 PM
Teuta Franjkovic
Published July 4, 2023 12:05 PM
Key Takeaways
  • Co-founders of the now-defunct 3AC intend to give future profits from their new business to creditors who suffered losses when 3AC filed for bankruptcy
  • Co-founder Kyle Davis referred to the initiative as a “shadow recovery process”
  • Two weeks ago 3AC founders announced a new venture capital fund

According to Kyle Davies, one of the founders of the defunct cryptocurrency hedge fund Three Arrows Capital (3AC), he and the other founder would donate “future earnings” to creditors who lost money during the company’s collapse last year.

Donating Profits ‘For Karma’

Davies referred  to the idea as a “shadow recovery process,” separate from the actual liquidation proceedings that aim to recoup value from the insolvent company and distribute it to creditors. He claimed that several early creditors had already received full repayment.

The failing hedge fund manager claimed that he and his co-founders believed in “karma” and that any further donations would complement any payouts received through the legal channels.

A crypto community and creditors still suffering losses from the catastrophic collapse may view the views with skepticism.

A representative for Teneo, the 3AC liquidator, stated: “The founders of Three Arrows have willfully ignored multiple requests to assist with this process after initiating the liquidation themselves, and the court records paint a clear picture of the ways in which they have hindered creditor recoveries.”

He added that his company advises the founders to participate in the court-ordered operations already in progress rather than guaranteeing creditors future profits from a budding business.

“We have a procedure whereby we will gradually contribute,” said Davies and added the company believes that doing good will allow creditors who lost money to find a method to recover more of their losses.

After being questioned about the perception of him and Su Zhu, the other co-founder, working on a new cryptocurrency exchange from the beaches of Bali while their prior company was going through the insolvency process, Davies made the remarks. He claimed that their new business endeavor has a “connection” to their creditors, who will, in reality, profit from their new entrepreneurial endeavor.

To trade bankruptcy claims, the two have established an Open Exchange (OPNX) trading platform. Following the filing for Chapter 11 protection of big participants like Celsius Network and FTX during the recent market crash, the exchange asserts that there are 20 million customers with $20 billion in claims. Less than a year after the collapse of the hedge fund and the loss of $2.5 billion in customer deposits, the exchange, known as Open Exchange (OPNX), was announced. 

“If there are some that don’t want to deal with us, then they don’t have to. We very much believe that if we do good and we say to creditors who lost money, they have a way to make more back. If we do bad and they do well, then that’s great. And that’s good karma, or whatever you want to call it,” Davies stated .

When questioned about OPNX’s development in the Twitter Spaces, Davies responded that “it’s a journey” and that they are currently witnessing daily trading volume of roughly $50 million.

Davies noted there is no tokenized asset used in the shadow recovery procedure. As of the time of publication, CoinDesk had reached out to the founder for a statement to explain the mechanism.

FTX, Genesis, BlockFi, Voyager, Hodlnaut, Mt. Gox, Vauld, Zipmex, and even Three Arrows Capital claims are “coming soon,” according to the company’s website. At the moment, only claims from lender Celsius are tradeable on the platform.

History of Bad Debt and Unsecured Loans

When the market collapsed last year, the firm’s long-only trading strategy quickly unraveled in a pool of bad debt and unsecured loans before coming to an end in a time of contagion that impacted a number of top crypto enterprises.

Zhu and Davies traveled to Singapore in an effort to escape the heat. The $50 million, 500-ton superyacht known as “Much Wow” was repossessed when the pair missed payments, and Zhu sold off his Singapore real estate in the process.

Due to a string of risky leveraged transactions made during the bear market in cryptocurrencies and its exposure to the $40 billion collapse of the Terra Luna ecosystem in May 2022, 3AC filed for bankruptcy in the British Virgin Islands in June 2022.

In November last year, Davies made a brief appearance in public after several months of silence. One of the seven nations without an extradition agreement with the United States is Indonesia, home to the island of Bali, as disclosed by Davies.

Following that interrogation, Davies withdrew once more before emerging briefly in the hopes that public opinion had changed.

Su Zhu and Kyle Davies then returned with a new cryptocurrency exchange, The Open Exchange (OPNX), where people could trade bankruptcy claims—a hot market given all the industry distress—just a year after 3AC collapsed along with $2.5 billion of clients’ money.

Three Arrows Capital Founders Open New Venture Capital Fund.

Open Exchange (OPNX), a marketplace for trading claims against insolvent cryptocurrency firms, introduced a new ecosystem partner  on June 21 under the name “3AC Ventures.” Development team members claim that “the partnership will invest in projects building in the OPNX ecosystem and working towards a decentralized future.” Su Zhu and Kyle Davies, who both co-founded the now-defunct Singaporean hedge fund Three Arrows Capital (3AC), launched OPNX.

Davies made the remark, citing the news, “3AC is dead, long live 3AC Ventures.” Users are welcomed by the words “3AC Ventures is focused on superior risk-adjusted returns without leverage,” coupled with an email contact, on the company’s landing page.