Founders of Three Arrows Capital's New Life: Surfing, Meditation, and Traveling the World.

Original Title: "Their Crypto Company Collapsed. They Went to Bali."

Original Author: David Yaffe-Bellany, The New York Times

Translated by: Hu Tao, ChainCatcher

Shortly after his cryptocurrency hedge fund collapsed last year, triggering a market crash that devastated the entire industry, Kyle Davies boarded a plane and left his troubles behind.

He flew to Bali. As his company was liquidated and law enforcement agencies launched investigations on two continents, Davies spent his days drawing in cafes and reading Hemingway on the beach.

He also went on a trip. He traveled to Thailand, where fried oysters cost only a few dollars, and admired the local architecture in Malaysia. He posted a photo of himself petting a tiger tied to a pole in a private zoo in Dubai. In Bahrain, he participated in the pre-race competition of the Formula One Grand Prix.

On a clear evening, Davies and a group of cryptocurrency colleagues were picking mushrooms on a rooftop in Bali. "When you look at the stars, they seem to be moving," he recalled last month while dining at a seafood restaurant in Barcelona, Spain with his wife and two young daughters on vacation. "When you touch the grass, it feels different from ordinary grass."

As it turns out, the life of a lowly member of the encryption industry is not so bad after all.

One year ago, the hedge fund Three Arrows Capital, founded by 36-year-old Davies and Su Zhu, almost collapsed overnight. They were once cryptocurrency superstars, admired by hundreds of thousands of Twitter followers for their trading acumen and bold market predictions. They were regulars in the cryptocurrency podcast circle, and their influence allowed them to borrow hundreds of millions of dollars from leading companies and make big bets on the future of the industry.

When their hedge funds failed, the entire industry was dragged down. The ensuing crisis depleted the savings of millions of amateur investors and drove other companies into bankruptcy.

But according to their own account, Davies and Zhu have been thriving. They left the base of Three Arrows Capital in Singapore and traveled around Asia, effectively spending the summer. Davies started meditating. Su Zhu played video games and even found a surfing coach. His old friends spoke ill of him in the media, but he made new friends, including surfing enthusiasts and UFC fighters.

"They were very sympathetic and empathetic towards me," Zhu said from his luxurious home in Singapore. "They were defeated in a big fight, lost sponsorship or something else, and everyone was crying. But later, the boxer himself - his thoughts had already moved on to the next match."

Last year, the encryption industry collapsed, wiping out over $1 trillion from the market, and some of the industry's key figures were held accountable. Zhao Changpeng, CEO of Binance, the world's largest cryptocurrency trading platform, is under criminal investigation and facing a lawsuit from the US Securities and Exchange Commission. Sam Bankman-Fried, founder of the FTX trading platform, is under house arrest at his childhood home in Palo Alto, California, awaiting trial on fraud charges. Do Kwon, the South Korean entrepreneur who created the failed Luna cryptocurrency, was arrested in Montenegro this spring after evading authorities for several months.

However, many other executives who have gained wealth and status by promoting cryptocurrencies to the public have avoided serious consequences. They cashed out early, invested in real estate, or sought tax havens.

The founders of SanJian Capital are two of the most prominent examples. After managing funds worth over $4 billion at their peak, they still live comfortable lives. Davies and Zhu refuse to provide an estimate of their total wealth, but they say they have saved enough money over the years and do not need to work anymore.

Both sides are unwilling to apologize for the collapse. Three Arrows owes creditors $3.3 billion; the company is registered in the British Virgin Islands, and the court-appointed liquidator claims that Davies and Zhu refused to cooperate in the recovery process. In October of last year, Bloomberg reported that US federal regulators were investigating whether Davies and Zhu had lied to Three Arrows Capital investors about their financial situation.

Davies and Zhu insist that they have done nothing wrong. They claim that they are facing death threats, but point out that no government agency has prosecuted or requested their arrest.

A friend recently asked Davies if he felt any regret. "Regret about what?" he replied.

Over the past few months, Davies and Zhu have been planning their comeback. In April, they launched Open Exchange, a marketplace for traders who suffered losses during last year's cryptocurrency crash. Customers will be able to buy and sell claims on the bankrupt assets of defunct crypto companies such as FTX and Three Arrows themselves.

In the promotional document sent to investors in January, Davies and Zhu named their new company code "GTX", which is the successor to Bankman-Fried's failed trading platform.

"I just think it's funny," Zhu said.

Encryption "Super Cycle"

Davies and Zhu lead parallel lives. They grew up in the Northeastern United States and attended high school together at Phillips Academy in Andover, Massachusetts. They became business partners in the mid-2000s while they were undergraduates at Columbia University. That summer after their freshman year, they went to Buenos Aires and opened a café where they taught local workers how to play online poker and then bet on them, offering bonuses as rewards.

However, their plan to create a South American card machine army has a fatal flaw: none of them speak Spanish. They mistakenly believe that working-class Argentines will understand English.

After graduating from Columbia University, Davies and Zhu worked at Credit Suisse for a period of time before founding Three Arrows Capital in their early twenties in 2012. They started trading financial products linked to foreign currencies, but around 2019 they shifted their focus to cryptocurrency as the market was recovering from a severe downturn.

By 2021, as cryptocurrency prices soared to record levels, Davies and Zhu managed billions of dollars, investing in cryptocurrency startups and borrowing hundreds of millions of dollars to make bigger bets. Zhu has accumulated 500,000 followers on Twitter, promoting his cryptocurrency "super cycle" theory, which claims that the price of Bitcoin will rise to over $1 million.

Davies said that he believes there is not much difference between running a business and playing online games. "If you are very good at games, you will make a lot of money," he said.

For a period of time, the bet paid off. According to media reports, Zhu spent $35 million to purchase a high-end villa, which is a popular type of luxury home among Singapore's financial elites, and settled down in a quiet, tree-lined neighborhood on the island.

Davies pursues more luxurious rewards. "I just told Zhu, 'I'm going to buy a boat. I need it,'" he recalled. "Zhu was like, 'Okay, I need it too.' And I thought, 'Okay, then we need to be together.'"

They selected a super yacht designed by the Italian shipyard Sanlorenzo, which has five decks, two extendable terraces, and a swimming pool. They named the boat Much Wow, referencing the meme popular among investors in the joking cryptocurrency Dogecoin.

Yachts have become Davies' favorite. Inside, he plans to showcase a series of irreplaceable tokens, unique digital collectibles known as NFTs. One level is set up as a hydroponic garden - this was added at the request of Zhu's wife, who is a biologist and an avid gardener.

That was an exciting time. "I'm actually looking at some islands too," Davies said. But as he was putting the finishing touches on the boat, the cryptocurrency market was heading towards a crisis. In Singapore, Davies and Zhu began to interact with the founders of Luna. In February 2022, they purchased $200 million worth of LUNA.

Three months later, Luna lost all her value in just a few days. The crash caused a sharp drop in the prices of all major crypto tokens. Many other bets of Three Arrows Capital quickly turned sour.

With the market collapse, the founder's creditors ordered them to repay hundreds of millions of dollars - money that Three Arrows no longer has.

Behind the scenes, there was chaos. According to documents submitted to the British Virgin Islands court, Three Arrows attempted to borrow 5,000 bitcoins (worth $125 million at the time) from the cryptocurrency lending company Genesis to repay a separate creditor. (Zhu said the allegations of financial manipulation were inaccurate.) As the fate of the company became clearer, its lenders complained that Davies and Zhu were not responding to messages.

The impact of the company's collapse is immediate. One of Three Arrows' largest creditors is Voyager Digital, a cryptocurrency bank that lent it about $700 million. After Three Arrows defaulted on the loan, Voyager became insolvent, and the savings of millions of customers were lost.

In a letter to the judge overseeing the bankruptcy of Voyager, the client described the impact of these life-changing losses. One investor who had $30,000 invested in Voyager wrote, "Losing this money and not seeing an end to it has been unbearable for my family. Most nights, I wake up and just pace the stairs, reflecting on my mistakes."

On Twitter, angry cryptocurrency investors accused Davies and Zhu of accelerating the market crash. The Singaporean financial regulatory agency condemned Three Arrows Capital, stating that the company provided "misleading" information to the government. In the media, a creditor accused the founders of lying about their finances and compared them to infamous Ponzi scheme fraudster Bernie Madoff.

Zhu said that his lawyer assured him that Three Arrows' actions were "whiter than white" compared to white people. When the company was liquidated in June of last year, he and Davies were in Bali. Zhu was learning to surf while Davies bought a set of paints and started trying still life painting.

"Eating very fatty pork dishes, drinking a lot of alcohol, and then going to the beach to meditate," Davies said in recalling his trip. "You have these magical experiences."

In late June, a court in the British Virgin Islands appointed Teneo, a consulting firm, as the liquidator of the fund and recovered over $3 billion in debt owed to creditors. The whereabouts of the founder have been unknown for weeks. The liquidator complained in court that Davies and Zhu had concealed important records.

According to the liquidator's statement in court, during a phone conference in July, the founder turned off the camera appearing on Zoom and remained silent as the new supervisor of Sanjian repeatedly questioned them.

Davies and Zhu said they have cooperated with legal proceedings. However, in December, the liquidator's lawyer Adam Goldberg told the bankruptcy judge that these two individuals "failed to deliver information and assets to creditors in accordance with their duties."

"The founder's actions indicate that they are hiding something," said Goldberg.

东山再起

translates to

East Mountain Rises Again

After traveling to Bali and Dubai, Zhu returned to Singapore and lived with his wife and two young daughters in the upscale villa he purchased during the peak of his success at Sanjian. Last year, the couple transformed their yard into a sustainable agriculture farm - a carefully designed system of lakes and gardens aimed at replicating self-sustaining ecosystems found in nature. It is home to ducks, chickens, and various species of dragonflies.

One afternoon in May, a bare-chested man wandered among rows of vegetation, taking photos incessantly. "One of the most important insect experts in Singapore," Zhu explained.

Like many cryptocurrency evangelists, Zhu has a tendency towards bold declarations. He has predicted that the debate over cryptocurrency could spark a civil war in the United States, and he often frames his observations of the market in the context of world history.

We are entering the era of knights," he said at last month's dinner. An hour or two later, he added, "We are in the golden age of slander.

During the process of touring the venue led by Zhu, he stopped at a chicken farm and introduced economic history. "I have always been anti-capitalism," he said. He also insisted that he "actually opposes yachts" personally.

His wife looked at him suspiciously. "You do have a dream of traveling around the world," she said.

Much Wow never took off. Court records show that Davies and Zhu's contract with the shipyard was canceled after they failed to make the final payment; the yacht was sold to a new buyer, and the liquidator for Three Arrows Company demanded $30 million from the transaction. The liquidator also raised funds through other means: last month, Sotheby's auctioned off Three Arrows Capital's NFT series for about $2.5 million.

Davies and Zhu claim that they have handed over the records to the new management of the company. However, the liquidator stated that they still lack crucial materials and the founders' lack of cooperation has doubled the cost of the recovery process.

"At their most recent hearing, one of them appeared to be tweeting from a ship in Dubai," said Russell Crumpler, Senior Managing Director at Teneo, who previously led the liquidation of the British Virgin Islands.

So far, the government's investigation into Three Arrows Capital has not led to any charges. A spokesperson for the Monetary Authority of Singapore stated that the agency has been "assessing whether there are further breaches" and last year, the agency reprimanded Davies and Zhu. Representatives from the US Securities and Exchange Commission and the Commodity Futures Trading Commission declined to comment.

Davies said he was ready to leave Three Arrows Capital before the end of last summer. "I spent a lot of time meditating in Bali, so much so that I was really relaxed," he said.

Within a few months of seeing their company collapse, he and Zhu were discussing new business investments, including a co-living plan in Bali that may involve a type of encrypted token.

"Waves - they keep coming," Zhu said, using a surfing metaphor. "You may hit a big wave. It's okay. You can hurt yourself, then heal, and then get the next one."

Davies and Zhu began rebuilding their strong public influence last November, around the time of FTX's failure. Suddenly, a bigger villain appeared in town.

Davies continued on CNBC, arguing without citing too much evidence that Bankman-Fried of FTX manipulated the cryptocurrency market and intentionally harmed Three Arrows Capital. (Mr. Bankman-Fried denies this.) A host asked Davies if he moved to Bali because there is no extradition treaty between Indonesia and the United States.

"No," he replied, "this is just a good place."

Last year, Davies and Zhu co-founded their new company Open Exchange with CoinFLEX's founders Mark Lamb and Sudhu Arumugam. CoinFLEX was a cryptocurrency company that went bankrupt last year.

The beginning of this business was not smooth. Some companies listed as investors on Open Exchange's Twitter account denied any involvement. A financial regulatory agency in Dubai stated that Open Exchange was operating without a license.

Zhu said he is addressing criticism. On Twitter, he responded to a negative article from the Wall Street Journal by quoting John F. Kennedy: "We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard."

I have created 75 job positions," he said while having dinner in Singapore. "At least these people like me.

This month, Open Exchange launched its own cryptocurrency called OX, which saw a surge in price within a few days. "I feel the same excitement as when I first joined Three Arrows Capital," Davies wrote on Twitter on Tuesday. "Nothing beats the energy of a startup company."

Privately, Davies has been encouraging the creditors of Sanjiang Aerospace Group to trade their bankruptcy claims on Open Exchange. In January, he invited creditors to attend a "temporary 3AC creditors' meeting". However, according to two sources familiar with the matter, Davies was the only one speaking during the call and ended the meeting when someone attempted to ask a question.

Last month in Barcelona, Davies seemed very relaxed and enthusiastically talked about the "amazing cafes" on La Rambla, a busy avenue that runs through the city center. One Saturday night, he had a very late dinner at Els Pescadors, a seafood restaurant near the beach, where he ordered oysters, fried meatballs, local wine, and three glasses of whiskey.

At the end of the meal, Davies talked endlessly about his business ideas. He mentioned that he had inquired about opening a chicken restaurant in Dubai, possibly using a cloud kitchen format without a physical storefront. At one point, he and Zhu had considered making a movie about the collapse of Luna.

Davies also had the idea of entering the artificial intelligence industry. "I am willing to believe that I can create two more companies," he said, "but I also agree with the idea of ​​completely retiring now."

He left the restaurant at midnight and strolled down a busy street lined with open-air bars, with the low murmur of late-night conversations in the distance. He was beaming with joy.

"If anyone has any questions," Davies said, "just go to Bali." Then he turned around, swayed slightly, and walked into the night.

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