Three Arrows Founders' New Life After Failed: Surfing, Meditation and Traveling the World

By David Yaffe-Bellany, The New York Times

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

Compilation: Tao Hu, ChainCatcher

Shortly after his cryptocurrency hedge fund collapsed last year and triggered a market crash that wiped out entire industries, Kyle Davies boarded a plane and put his troubles behind him.

He flies to Bali. With his company liquidated and law enforcement authorities investigating on two continents, Davies spent his days painting in cafes and reading Hemingway on the beach.

He also traveled. He traveled to Thailand, where fried oysters cost a few bucks, and admired the local architecture of Malaysia. He posted a photo of him petting a tiger chained to a pole at his private zoo in Dubai. In Bahrain, he raced ahead of the Formula 1 Grand Prix.

On a sunny evening on a rooftop in Bali, Davies was picking mushrooms with a group of crypto industry colleagues. "You look at the stars and it's like they're moving," he recalled last month over dinner at a seafood restaurant in Barcelona, Spain, while he was on vacation with his wife and two young daughters. "You touch the grass and it feels like, not like normal grass."

As it turns out, life as a crypto industry pariah isn't all that bad.

Three Arrows Capital, a hedge fund founded by Davies, 36, and Su Zhu, collapsed almost overnight a year ago. They were once cryptocurrency superstars, adored by hundreds of thousands of Twitter followers, and known for their trading acumen and bold market predictions. They are regular members of the crypto podcasting scene, and their clout has 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 fail, the entire industry is dragged down. The ensuing crisis wiped out the savings of millions of amateur investors and drove other companies into bankruptcy.

But by their own accounts, Davies and Zhu have been living comfortably. They left Singapore, the base of Three Arrows Capital, to travel around Asia, effectively spending their summer vacation. Davies begins to meditate. Su Zhu played video games and got a surfing instructor. His old friends badmouthed him in the media, but he made new friends, ranging from surfers to UFC fighters.

"They had a lot of sympathy for me," Zhu said at his mansion in Singapore. "They were beaten in a big fight, lost sponsorship or whatever, and everyone was crying. But then the boxer himself -- his thoughts It's moved on to the next game."

After the crypto industry collapsed last year, wiping more than $1 trillion from the market, some of the industry's leading figures have been held accountable. Changpeng Zhao, CEO of Binance, the world's largest cryptocurrency exchange, is under criminal investigation and facing a lawsuit from the U.S. Securities and Exchange Commission. FTX exchange founder Sam Bankman-Fried is under house arrest in his childhood home in Palo Alto, California, awaiting trial on fraud charges. South Korean entrepreneur Do Kwon, who created the failed Luna cryptocurrency, was arrested in Montenegro this spring after months of evading authorities.

However, many other executives who gained wealth and status by marketing cryptocurrencies to the masses avoided serious consequences. They cash out early and invest in real estate or tax havens.

The founders of Three Arrows Capital are two of the most prominent examples. After managing more than $4 billion in funds at their peak, they still live comfortably. Davies and Zhu declined to provide an estimate of their total wealth, but said they had saved enough over the years to not need to work.

Neither side was willing to apologize for the debacle. Three Arrows owes $3.3 billion to creditors; the company is registered in the British Virgin Islands, and its court-appointed liquidator claims Davies and Zhu have refused to cooperate in the recovery process. Last October, Bloomberg reported that U.S. federal regulators were investigating whether Davies and Zhu lied about their finances to investors in Three Arrows Capital.

Davies and Zhu insist they have done nothing wrong. They said they faced death threats, but noted that no government agency had prosecuted them or sought their arrest.

A friend recently asked Davies if he had any regrets. "Regret what?" he replied.

For the past few months, Davies and Zhu have been planning a comeback. In April, they launched Open Exchange, a marketplace for traders who lost money in last year's cryptocurrency crash. Clients will be able to buy and sell claims on the bankruptcy estates of defunct crypto companies like FTX and Three Arrows Capital itself.

In a pitch document sent to investors in January, Davies and Zhu codenamed their new company "GTX," the successor to the failed Bankman-Fried exchange.

"I just thought it was funny," Zhu said.

Encryption "Supercycle"

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 when they were undergraduates at Columbia University. The summer after their freshman year, they went to Buenos Aires, set up a shop in a cafe, taught local workers how to play online poker, and bet them some money, which they could get in return. Draw prizes.

But their plan to create an army of South American point-and-shoot players had a fatal flaw: none of them spoke Spanish. They mistakenly assume that working-class Argentines know English.

After graduating from Columbia University, Davies and Zhu worked briefly at Credit Suisse before starting Three Arrows in 2012 in their 20s. They started trading financial products pegged to foreign currencies but switched to cryptocurrencies around 2019 as the market recovered from a severe downturn.

Davies and Zhu are managing billions through 2021, investing in cryptocurrency startups and borrowing hundreds of millions of dollars to fuel even bigger bets as cryptocurrency prices soar to record levels. Zhu, who has amassed 500,000 followers on Twitter, promotes his cryptocurrency "supercycle" theory, which says bitcoin's price will push above $1 million.

Davies said he sees running a business as being no different than an online game. "If you're really good at the game, you're going to make a lot of money," he said.

For a while, the bet paid off. Zhu paid $35 million for a high-end bungalow, a type of mansion popular among Singapore's financial elite, and settled in a quiet, tree-lined neighborhood on the island, according to media reports.

Davies pursues more lavish rewards. "I just told Zhu: 'I'm going to buy a boat. I need it,'" he recalls. "Zhu was like, 'Okay, I need that too.' I was like, 'Okay, then we need to be together.'"

They picked a superyacht designed by Italian shipyard Sanlorenzo, with five decks, two retractable terraces and a swimming pool. They named the ship Much Wow, in reference to a meme popular among investors about the joked cryptocurrency Dogecoin.

Yachting became Davies' favorite. Inside, he plans to showcase a series of non-fungible tokens, unique digital collectibles known as NFTs. The ground floor was set up as a hydroponic garden—an addition at the behest of Zhu's wife, a biologist and avid gardener.

It was an exciting time. "I'm actually looking at some of the islands as well," Davies said. But as he puts the finishing touches on the ship, the cryptocurrency market is headed for a crisis. In Singapore, Davies and Zhu began dating Luna's founders. In February 2022, they purchased $200 million in Luna tokens.

Three months later, Luna lost all value in just a few days. The crash caused the prices of all major crypto tokens to plummet. Many of Three Arrows' other bets quickly soured.

As the market collapsed, lenders ordered them to repay hundreds of millions of dollars — the amount of money Three Arrows no longer owns.

There was chaos behind the scenes. Three Arrows had attempted to borrow 5,000 bitcoin (worth $125 million at the time) from cryptocurrency lending firm Genesis to repay a separate loan from another creditor, according to documents filed in the British Virgin Islands court. (Zhu said claims of their financial manipulation were inaccurate.) As the company's fate became clearer, its lenders complained that Davies and Zhu had not responded to messages.

The impact of the company's collapse was 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 wiped out the savings of millions of customers.

In letters to the judge overseeing Voyager's bankruptcy, its clients described the impact of these life-altering losses. “Losing this money with no end in sight is unbearable for my family,” wrote one investor with $30,000 on Voyager. “I wake up most nights just walking up and down the stairs Go, reflect on your mistakes."

On Twitter, angry cryptocurrency investors accused Davies and Zhu of hastening the market crash. Singapore's financial regulator has condemned Three Arrows, saying the firm provided "misleading" information to the government. In the press, a creditor accused the founders of lying about their finances and compared them to notorious Ponzi schemer Bernie Madoff.

Zhu said his lawyer assured him that Sanjian's actions were "whiter than white people." By the time the company went into liquidation last June, he and Davies were in Bali. Zhu is learning to surf. Davies bought a set of paints and began experimenting with still life painting.

"Eating very fatty pork dishes, drinking a lot of wine, and then going to the beach and meditating," Davies said of his trip, "you have these magical experiences."

In late June, a court in the British Virgin Islands appointed liquidators from consulting firm Teneo to take over the fund and recover more than $3 billion owed to creditors. For weeks, the founder's whereabouts were unknown. Liquidators complained in court that Davies and Zhu were withholding important records.

During a conference call in July, the founders appeared on Zoom with their cameras turned off and remained silent as Three Arrows' new overseers repeatedly questioned them, according to liquidators' statements in court.

Davies and Zhu say they have cooperated with the legal process. But in December, the liquidators' lawyer, Adam Goldberg, told the bankruptcy judge that the two "failed to deliver information and assets to creditors in accordance with their duties."

"The behavior of the founders suggests that they are hiding something," Goldberg said.

Comeback

After traveling in Bali and Dubai, Zhu returned to Singapore to live with his wife and two young daughters in an upscale bungalow he bought at the height of Three Arrows' success. Last year, the couple transformed their yard into a permaculture farm—an elaborate system of lakes and gardens designed to replicate self-sustaining ecosystems found in nature. It is home to ducks, chickens and many species of dragonflies.

One afternoon in May, a shirtless man wandered among the rows of vegetation, taking pictures incessantly. "One of the foremost insect experts in Singapore," Zhu explained.

Like many crypto evangelists, Zhu has a tendency to make bold claims. He has predicted that the debate over cryptocurrencies could lead to civil war in the United States, and he often articulates his observations about the market in terms of world history.

"We are entering the age of chivalry," he said at a dinner last month. An hour or two later, he added: "We are in the golden age of slander."

During Zhu's guided tour of the grounds, he stops at a chicken farm for an introduction to economic history. "I've always been very anti-capitalist," he said. He also insisted he was "actually personally against yachts".

His wife gave him a suspicious look. "You do have dreams of traveling the world," she said.

Much Wow never set sail. Court records show that the shipyard canceled the contract with Davies and Zhu after they failed to make the final payment; the yacht was sold to a new buyer, and Three Arrows’ liquidators sought to recover from that sum. $30 million in deal. Liquidators have also raised funds through other avenues: Last month, Sotheby’s auctioned off Three Arrows Capital’s collection of NFTs for about $2.5 million.

Davies and Zhu insist they have handed over the records to the company's new management. But liquidators said they were still missing key materials, and a lack of cooperation from the founders had doubled the cost of the recovery process.

“At the last hearing where they were supposed to be there, one of them appeared to be tweeting from a boat in Dubai,” said Russell Crumpler, a senior managing director at Teneo, which has led the British Virgin Islands liquidation.

So far, none of the government's investigations into Three Arrows have resulted in charges. A spokesman for the Monetary Authority of Singapore, which reprimanded Davies and Zhu last year, said the agency had been "assessing whether there were further breaches". Representatives for the SEC and the Commodity Futures Trading Commission declined to comment.

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

Within months of seeing their company collapse, he and Zhu were discussing new business ventures, including a co-living plan in Bali, possibly involving a crypto token.

"The waves—they keep coming," Zhu said, using a surfing metaphor. "You could hit a big wave. That's okay. You can hurt yourself, then heal, and then get the next one."

Davies and Zhu began rebuilding their strong public presence last November, around the time of FTX's demise. Suddenly, an even bigger villain appears in town.

Davies continued on CNBC, arguing without citing much evidence that FTX’s Bankman-Fried manipulated the crypto market to deliberately harm Three Arrows Capital. (Mr. Bankman-Fried has denied the claim.) A moderator asked Davies if he had moved to Bali because Indonesia does not have an extradition treaty with the United States.

"No," he replied, "it's just a nice place."

Davies and Zhu joined CoinFLEX founders Mark Lamb and Sudhu Arumugam late last year to launch their new company, Open Exchange. CoinFLEX is a cryptocurrency company that collapsed last year.

The business got off to a rocky start. Some of the companies listed as investors on the Open Exchange Twitter account have denied any involvement. A financial regulator in Dubai said Open Exchange was operating without a license.

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

"I've created 75 jobs," he said over dinner in Singapore. "At least these people like me."

This month, Open Exchange launched its own cryptocurrency called OX. Prices soared within days. "I'm feeling the early Three Arrows feeling again," Davies wrote on Twitter Tuesday. "There's nothing like the energy of a startup."

In private, Davies has been encouraging Three Arrows creditors to trade their bankruptcy claims on the Open Exchange. In January, he invited creditors to an "interim 3AC creditor meeting." But during the call, Davies kept talking; he ended the meeting just as someone tried to ask questions, according to two people familiar with the matter.

In Barcelona last month, Davies seemed relaxed and spoke effusively of the “amazing cafés” on Las Ramblas, the busy boulevard that straddles the city centre. One Saturday night, he had a late dinner at Els Pescadors, a seafood restaurant near the beach, ordering oysters, croquettes, local wine and three glasses of whiskey.

By the end of the meal, Davies gushed about the business idea. In Dubai, he said, he had inquired about opening a chicken restaurant, possibly in the form of a cloud kitchen, without a storefront. For a while, he and Zhu considered making a movie about Luna's breakdown.

Davies also had the idea of entering the artificial intelligence industry. "I would like to believe that I can create two more businesses," he said, "but I also agree with the idea that I will now fully retire."

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

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