Three Arrows Capital
Three Arrows Capital Insolvency
Estimated impact: $3.5B in creditor losses
Crypto hedge fund 3AC defaulted on $3.5B in loans from multiple lenders after making concentrated, leveraged bets on LUNA/UST and Grayscale Bitcoin Trust. Founders Zhu Su and Kyle Davies had publicly promoted positions they were secretly unwinding.
Decision context
Whether to maintain highly concentrated, leveraged positions in correlated crypto assets without adequate hedging or liquidity reserves.
Biases present in the decision
Toxic combinations
- Recency Spiral
- Optimism Trap
Reference class base rates
Across all 146 curated case studies in our library:
Lessons learned
- Recency bias from crypto bull markets led to position sizing that assumed perpetual upward trends
- Counterparty risk in crypto lending is amplified by opacity — lenders had no visibility into total exposure
- Hindsight bias after the collapse obscured that many participants knowingly accepted concentrated risk for yield
Source: Three Arrows Capital liquidation proceedings, BVI Commercial Court (2022); BlockFi bankruptcy filings (Case Study)
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