Three Arrows Capital (3AC)

Three Arrows Capital's June 2022 collapse helped trigger the crypto industry's worst contagion event. The hedge fund, founded by Su Zhu and Kyle Davies, had managed $10 billion at its peak and was considered one of crypto's most sophisticated investors. When Terra/Luna collapsed and crypto markets crashed, 3AC's leveraged positions became worthless. The fund's default on loans triggered failures at Voyager, Celsius, and contributed to broader market instability. The mechanism failure was leverage without hedging. 3AC had borrowed heavily to make concentrated bets on crypto assets, including the doomed Luna token. When markets crashed, 3AC's losses exceeded its assets; the fund couldn't meet margin calls or repay loans. This is the biological equivalent of an organism that borrowed against future resources and then couldn't survive when those resources failed to materialize. 3AC's founders fled to Dubai; the fund was ordered liquidated in the British Virgin Islands. Creditors are still pursuing billions in claims. The fund's collapse demonstrated how crypto's interconnected lending created contagion pathways—3AC's failure at Voyager, Celsius, and others because the industry lacked the circuit breakers and clearing mechanisms that traditional finance uses to contain counterparty failures.