WEBVTT 00:00:00.000 --> 00:00:02.379 Welcome back to the Deep Dive. I have a stack 00:00:02.379 --> 00:00:05.139 of documents on my desk today that honestly reads 00:00:05.139 --> 00:00:08.640 less like a financial report and more like, I 00:00:08.640 --> 00:00:10.359 don't know, the screenplay for a really dark, 00:00:10.419 --> 00:00:12.859 really expensive satire. We've got court filings 00:00:12.859 --> 00:00:14.839 from the British Virgin Islands, leaked WhatsApp 00:00:14.839 --> 00:00:17.640 messages, liquidation reports. And interviews 00:00:17.640 --> 00:00:20.940 conducted from... Undisclosed locations. Exactly. 00:00:20.960 --> 00:00:23.899 It is quite the stack. Usually when we look at 00:00:23.899 --> 00:00:26.320 financial collapses, we're dealing with pretty 00:00:26.320 --> 00:00:29.460 dry, boring things, interest rate mismatches, 00:00:29.480 --> 00:00:32.479 regulatory gray areas, dull accounting errors. 00:00:32.619 --> 00:00:35.560 But today, we are looking at something entirely 00:00:35.560 --> 00:00:37.939 different. We are looking at three arrows capital 00:00:37.939 --> 00:00:40.979 or three AC. And just to set the stakes here 00:00:40.979 --> 00:00:43.420 for you, we are not talking about some small 00:00:43.420 --> 00:00:46.119 hedge fund having a bad quarter. No. Not at all. 00:00:46.240 --> 00:00:48.619 We were talking about the firm that was for a 00:00:48.619 --> 00:00:50.719 brief moment, kind of like the central bank of 00:00:50.719 --> 00:00:52.859 the crypto universe. Right. When they collapsed 00:00:52.859 --> 00:00:55.600 in 2022, they didn't just lose their own money. 00:00:55.700 --> 00:00:58.460 No. They vaporized roughly three and a half billion 00:00:58.460 --> 00:01:00.920 dollars of other people's money. They left a 00:01:00.920 --> 00:01:03.619 blast radius that took down lenders, exchanges 00:01:03.619 --> 00:01:07.000 and thousands of retail investors. And that is 00:01:07.000 --> 00:01:10.849 the what? But the how and the who are what we 00:01:10.849 --> 00:01:13.250 are digging into today, because the main characters 00:01:13.250 --> 00:01:16.310 here, Suzu and Kyle Davies, they aren't your 00:01:16.310 --> 00:01:19.030 typical, you know, Bernie Madoff villains who 00:01:19.030 --> 00:01:21.849 hide in the shadows. They are. Well, they're 00:01:21.849 --> 00:01:24.090 distinct. That's a diplomatic way to put it. 00:01:24.129 --> 00:01:26.599 We are talking about guys who. ghosted their 00:01:26.599 --> 00:01:29.400 creditors to go surf and baller we're talking 00:01:29.400 --> 00:01:33.439 about a 150 million dollar yacht named much wow 00:01:33.439 --> 00:01:35.540 and you can't forget the permaculture farm in 00:01:35.540 --> 00:01:37.980 singapore oh right filled with specific breeds 00:01:37.980 --> 00:01:41.620 of dragonflies it's just But our mission today 00:01:41.620 --> 00:01:44.140 isn't just to gawk at the absurdity. It's to 00:01:44.140 --> 00:01:46.819 figure out how two high school friends convinced 00:01:46.819 --> 00:01:49.299 the smartest lenders in the world to give them 00:01:49.299 --> 00:01:51.480 billions of dollars with. And I was shocked when 00:01:51.480 --> 00:01:54.239 I read this. Almost no collateral. How does that 00:01:54.239 --> 00:01:56.459 even happen? Well, it happens because of a very 00:01:56.459 --> 00:01:59.159 specific type of modern delusion. It's a story 00:01:59.159 --> 00:02:00.879 about what happens when you mistake leverage 00:02:00.879 --> 00:02:03.840 for genius. And to understand the collapse, you 00:02:03.840 --> 00:02:05.620 really have to understand the psychology that 00:02:05.620 --> 00:02:07.780 built the machine in the first place. So let's 00:02:07.780 --> 00:02:10.939 rewind. Before the yacht, before the billions, 00:02:11.099 --> 00:02:14.800 before the prison sentences, who are these guys? 00:02:15.360 --> 00:02:17.780 Because in the photos I've seen, they look like 00:02:17.780 --> 00:02:20.960 pretty standard finance bros. And that's where 00:02:20.960 --> 00:02:23.479 it starts, surprisingly, in a very traditional 00:02:23.479 --> 00:02:27.500 way. Suzu and Kyle Davies met at Phillips Academy 00:02:27.500 --> 00:02:30.969 in Andover. Okay, so Phillips Academy. That is 00:02:30.969 --> 00:02:33.310 the elite of the elite. That's old money, prestige, 00:02:33.449 --> 00:02:35.710 the whole nine yards. Exactly. It's a feeder 00:02:35.710 --> 00:02:37.810 school for the Ivy League. Yeah. And that's exactly 00:02:37.810 --> 00:02:39.189 where they went. They both landed at Columbia 00:02:39.189 --> 00:02:41.990 University. They followed the golden path of 00:02:41.990 --> 00:02:45.229 finance, good school, math degrees, and then 00:02:45.229 --> 00:02:47.050 straight onto the trading floor at Credit Suisse. 00:02:47.210 --> 00:02:49.689 This is important context, I think. They weren't 00:02:49.689 --> 00:02:52.289 crypto -native hackers living in a basement mining 00:02:52.289 --> 00:02:54.189 Bitcoin on a laptop. No, not at all. They were 00:02:54.189 --> 00:02:56.150 institutional. They spoke the language of Wall 00:02:56.150 --> 00:02:59.090 Street. They did. And that pedigree is, I think, 00:02:59.370 --> 00:03:01.129 partially what allowed them to get away with 00:03:01.129 --> 00:03:03.750 so much later on. But they didn't stay in Credit 00:03:03.750 --> 00:03:06.389 Suisse for very long. They had an itch. In 2012, 00:03:06.550 --> 00:03:08.710 they quit the bank and launched Three Arrows 00:03:08.710 --> 00:03:13.669 Capital. 2012. Wow. Bitcoin is barely a blip 00:03:13.669 --> 00:03:15.770 on the radar then. Were they buying crypto back 00:03:15.770 --> 00:03:18.389 then? No. And this is the part of the story most 00:03:18.389 --> 00:03:21.030 people miss. For the first five or six years, 00:03:21.409 --> 00:03:23.490 Three Arrows Capital wasn't a crypto fund at 00:03:23.490 --> 00:03:26.830 all. It was an FX arbitrage fund. Okay, let's 00:03:26.830 --> 00:03:30.189 pause there. FX arbitrage. We hear this term 00:03:30.189 --> 00:03:32.569 arbitrage a lot. Break that down for us. What 00:03:32.569 --> 00:03:34.830 were they actually doing day to day? So in the 00:03:34.830 --> 00:03:37.210 simplest terms, arbitrage is, you know, finding 00:03:37.210 --> 00:03:39.289 the same item sold for two different prices in 00:03:39.289 --> 00:03:41.409 two different places. And you pocket the difference. 00:03:41.990 --> 00:03:44.189 Sue and Kyle focused on emerging market foreign 00:03:44.189 --> 00:03:47.330 exchange derivatives, specifically NDFs, non 00:03:47.330 --> 00:03:49.889 -deliverable forwards. That sounds incredibly 00:03:49.889 --> 00:03:53.270 dry. Why those currencies specifically? Why not 00:03:53.270 --> 00:03:55.669 just trade the euro or the US dollar? Because 00:03:55.669 --> 00:03:57.919 the major markets are just too efficient. Everyone 00:03:57.919 --> 00:04:00.020 knows the price of the euro down to the microsecond. 00:04:00.120 --> 00:04:02.539 But in emerging markets, think the Indonesian 00:04:02.539 --> 00:04:04.860 rupee, the Korean one, the Indian rupee, the 00:04:04.860 --> 00:04:07.860 pricing can get messy. Electronic trading platforms 00:04:07.860 --> 00:04:09.460 would sometimes show a price that was lightly 00:04:09.460 --> 00:04:11.939 stale or slightly different from the real market 00:04:11.939 --> 00:04:14.639 price. So they were hunting for glitches, like 00:04:14.639 --> 00:04:17.860 mistakes in the matrix. Essentially, yes. They 00:04:17.860 --> 00:04:20.540 wrote code to scrape these electronic platforms. 00:04:21.160 --> 00:04:23.920 If a bank's computer said the price was X but 00:04:23.920 --> 00:04:27.500 the real market was Y, 3AC would just smash the 00:04:27.500 --> 00:04:30.139 buy button, lock in the profit, and then sell 00:04:30.139 --> 00:04:34.120 it instantly. That sounds risky. Or is it free 00:04:34.120 --> 00:04:36.459 money? In theory, it is free money. It's supposed 00:04:36.459 --> 00:04:39.860 to be risk -free profit. But here's the catch, 00:04:40.019 --> 00:04:41.980 and this tells you everything you need to know 00:04:41.980 --> 00:04:45.160 about Sue and Kyle's psychology. To make real 00:04:45.160 --> 00:04:48.000 money on these tiny price differences, you have 00:04:48.000 --> 00:04:50.589 to trade massive volume. We're talking about 00:04:50.589 --> 00:04:52.910 picking up fractions of a penny millions and 00:04:52.910 --> 00:04:54.829 millions of times. The steamroller strategy. 00:04:55.149 --> 00:04:57.410 Exactly. Picking up pennies in front of a steamroller. 00:04:57.930 --> 00:05:00.269 But the steamroller here wasn't the market crashing. 00:05:00.389 --> 00:05:03.649 It was the banks themselves. See, the banks hated 00:05:03.649 --> 00:05:06.730 this. Why? I mean, if the bank posted the price, 00:05:06.870 --> 00:05:08.670 surely they have to honor it. You would think 00:05:08.670 --> 00:05:11.250 so. But in the fine print of these electronic 00:05:11.250 --> 00:05:14.029 trading agreements, banks often have a last look 00:05:14.029 --> 00:05:16.189 clause. It basically says, oops, that price was 00:05:16.189 --> 00:05:18.089 a mistake. We're canceling the trade. So the 00:05:18.089 --> 00:05:20.310 bank can just call a do -over to say, just get 00:05:20.310 --> 00:05:24.449 it. Yes. And most traders, when a bank cancels 00:05:24.449 --> 00:05:26.730 a trade, they say, OK, sorry about that. Let's 00:05:26.730 --> 00:05:28.569 maintain the relationship. We want to keep trading 00:05:28.569 --> 00:05:31.790 with you tomorrow. Sue and Kyle. They did the 00:05:31.790 --> 00:05:34.329 absolute opposite. What did they do? They fought 00:05:34.329 --> 00:05:37.449 every single cancellation. Really? They would 00:05:37.449 --> 00:05:39.569 refuse to let the banks back out. They'd quote 00:05:39.569 --> 00:05:42.069 the rule book. They'd threaten legal action. 00:05:42.290 --> 00:05:44.149 They would basically hold the trade hostage and 00:05:44.149 --> 00:05:46.410 say, you posted the price, you have to pay us. 00:05:46.569 --> 00:05:49.689 They were incredibly aggressive. So they're biting 00:05:49.689 --> 00:05:53.189 the hand that feeds them. That seems really short 00:05:53.189 --> 00:05:55.930 -sighted. It was. They treated the banks as adversaries 00:05:55.930 --> 00:05:58.410 to be beaten, not as partners. And it worked 00:05:58.410 --> 00:06:00.889 for a while. They made millions. But you can 00:06:00.889 --> 00:06:04.209 only poke the bear so many times. By 2017, the 00:06:04.209 --> 00:06:06.430 major banks, we are talking the big global players, 00:06:06.610 --> 00:06:08.790 had had enough. They started deplatforming 3AC. 00:06:08.949 --> 00:06:10.730 They got kicked out of the casino. They did. 00:06:10.850 --> 00:06:13.689 They had the capital. They had this hyper -aggressive 00:06:13.689 --> 00:06:16.009 mindset. But they had nowhere left to trade. 00:06:16.290 --> 00:06:18.889 The FX market was effectively closed to them. 00:06:19.449 --> 00:06:22.250 And this is a crucial pivot point. It's 2017. 00:06:23.420 --> 00:06:25.459 Where do you go if you have a high risk tolerance, 00:06:25.680 --> 00:06:28.040 a lot of cash, and you hate the traditional banking 00:06:28.040 --> 00:06:30.540 system? You go to crypto. You go to crypto. And 00:06:30.540 --> 00:06:32.540 this is where the story shifts gears. They took 00:06:32.540 --> 00:06:36.720 that same exact strategy, aggressive, leverage 00:06:36.720 --> 00:06:39.540 heavy, finding inefficiencies, and applied it 00:06:39.540 --> 00:06:41.740 to a market that was the wild west. It's like 00:06:41.740 --> 00:06:44.160 taking a Formula One driver who's used to a pristine 00:06:44.160 --> 00:06:46.199 track and just dropping them into a demolition 00:06:46.199 --> 00:06:48.759 derby. That's a perfect analogy. So let's talk 00:06:48.759 --> 00:06:50.480 about the rise. Once they made that switch, they 00:06:50.480 --> 00:06:52.600 didn't just participate. I mean, they dominated. 00:06:52.899 --> 00:06:55.740 They scaled incredibly fast. By March of 2022, 00:06:56.160 --> 00:06:58.740 the blockchain analytics firm Nansen estimated 00:06:58.740 --> 00:07:01.220 they managed about $10 billion in crypto assets. 00:07:01.500 --> 00:07:04.819 And 3AC's own last public statement claimed a 00:07:04.819 --> 00:07:09.000 net asset value, or NAV, of $18 billion. $18 00:07:09.000 --> 00:07:13.740 billion. That is a staggering number. But wait, 00:07:13.839 --> 00:07:15.759 if they started with millions from FX trading. 00:07:16.910 --> 00:07:20.470 How do you get to 18 billion in five years? Even 00:07:20.470 --> 00:07:22.610 with crypto going up as much as it did, that 00:07:22.610 --> 00:07:26.310 math seems aggressive. That is the right question 00:07:26.310 --> 00:07:29.180 to ask. And the answer is borrowing. There's 00:07:29.180 --> 00:07:30.959 significant evidence, and certainly looking at 00:07:30.959 --> 00:07:33.319 the bankruptcy filings now, that most of those 00:07:33.319 --> 00:07:36.500 visible assets weren't really theirs in the traditional 00:07:36.500 --> 00:07:38.439 sense. What do you mean? They were sourced from 00:07:38.439 --> 00:07:40.800 uncollateralized borrowing. Uncollateralized 00:07:40.800 --> 00:07:42.379 borrowing. Okay, let's unpack that. If I go to 00:07:42.379 --> 00:07:44.220 a bank for a mortgage, I have to pledge the house. 00:07:44.420 --> 00:07:46.680 If I don't pay, they take my house. What does 00:07:46.680 --> 00:07:49.879 uncollateralized mean in this context? It means 00:07:49.879 --> 00:07:51.920 they were borrowing on a handshake and a reputation. 00:07:52.589 --> 00:07:54.990 They would go to a lender like, say, Voyager 00:07:54.990 --> 00:07:57.329 or Genesis and say, look at our assets, look 00:07:57.329 --> 00:07:59.790 at our track record, lend us $500 million in 00:07:59.790 --> 00:08:02.910 Bitcoin. And because 3AC was the golden child 00:08:02.910 --> 00:08:05.670 of the industry, the lenders just said yes. Without 00:08:05.670 --> 00:08:08.149 asking for $500 million worth of insurance or 00:08:08.149 --> 00:08:10.750 some other asset to back it up. Often with very, 00:08:10.829 --> 00:08:13.689 very little. Or they would accept collateral 00:08:13.689 --> 00:08:16.589 that was itself just other volatile crypto tokens. 00:08:16.769 --> 00:08:20.129 It was a house of cards built on trust. And frankly. 00:08:20.600 --> 00:08:22.959 FOMO from the lenders. And Suzu made sure to 00:08:22.959 --> 00:08:24.620 maintain that image. Right. He wasn't exactly 00:08:24.620 --> 00:08:26.779 keeping a low profile during all this. Not at 00:08:26.779 --> 00:08:29.339 all. He became a massive influencer. He amassed 00:08:29.339 --> 00:08:32.120 over half a million Twitter followers. They weren't 00:08:32.120 --> 00:08:34.299 just traders. They became the thought leaders 00:08:34.299 --> 00:08:36.980 of this super cycle. The super cycle. I remember 00:08:36.980 --> 00:08:40.179 this vividly. This was the thesis that crypto 00:08:40.179 --> 00:08:42.759 was done with the boom and bust cycles. From 00:08:42.759 --> 00:08:44.779 now on, it was just going to go up forever because 00:08:44.779 --> 00:08:46.759 of institutional adoption. That was the thesis. 00:08:46.879 --> 00:08:49.720 Up only. And because they were so loud about 00:08:49.720 --> 00:08:51.720 it and because they had so much money under management, 00:08:51.899 --> 00:08:54.740 people believed them. They backed major projects. 00:08:54.919 --> 00:08:57.259 I mean, if you look at their portfolio, it was 00:08:57.259 --> 00:09:00.240 a who's who of the 2021 bull run. Like what? 00:09:00.700 --> 00:09:03.679 AAV, Avalanche, WorldCoin, BlockFi, Deribit, 00:09:03.759 --> 00:09:06.799 Ethereum, Polkadot, Solana, WO Network, you name 00:09:06.799 --> 00:09:08.440 it, they were in it. It sounds like they just 00:09:08.440 --> 00:09:10.639 bought the entire market. They practically did. 00:09:10.980 --> 00:09:13.899 But they had a few specific bets that were absolutely 00:09:13.899 --> 00:09:16.299 massive. And these are the ones that eventually 00:09:16.299 --> 00:09:18.600 came back to haunt them. And the biggest one, 00:09:18.659 --> 00:09:20.580 the one we really need to understand, is the 00:09:20.580 --> 00:09:24.740 Grayscale Bitcoin Trust, or GBTC. Okay, GBTC. 00:09:25.159 --> 00:09:27.559 In the sources, this comes up over and over again. 00:09:27.700 --> 00:09:30.240 It was their primary engine of wealth, and then 00:09:30.240 --> 00:09:33.200 their coffin. But I'll be honest, the mechanism 00:09:33.200 --> 00:09:35.700 here is a little confusing. Why would you buy 00:09:35.700 --> 00:09:38.879 grayscale Bitcoin instead of just buying Bitcoin? 00:09:39.240 --> 00:09:41.500 This is the multibillion dollar question. To 00:09:41.500 --> 00:09:43.200 understand this, you have to understand that 00:09:43.200 --> 00:09:47.159 back in 2020 and 2021, big institutional investors, 00:09:47.679 --> 00:09:50.659 pension funds, retirement accounts, they couldn't 00:09:50.659 --> 00:09:53.460 just go to Coinbase and buy Bitcoin. Right. Regulations 00:09:53.460 --> 00:09:55.419 didn't allow it. Right. Their charters wouldn't 00:09:55.419 --> 00:09:57.820 allow them to hold magic internet money directly. 00:09:58.059 --> 00:09:59.659 Right. They need a regulated product, something 00:09:59.659 --> 00:10:01.299 that looks like a stock they can see in their 00:10:01.299 --> 00:10:04.259 brokerage account. Exactly. And GBTC was the 00:10:04.259 --> 00:10:06.779 only game in town. It was a trust that held Bitcoin 00:10:06.779 --> 00:10:09.340 and you could buy shares of the trust. But because 00:10:09.340 --> 00:10:11.399 it was the only way for big money to get exposure, 00:10:11.580 --> 00:10:14.139 those shares traded at a massive premium. Give 00:10:14.139 --> 00:10:16.100 me a number. What kind of premium are we talking 00:10:16.100 --> 00:10:18.720 about? At times, their shares were trading 40 00:10:18.720 --> 00:10:20.740 % higher than the value of the Bitcoin that was 00:10:20.740 --> 00:10:24.379 actually inside the trust. Wait, let me get this 00:10:24.379 --> 00:10:26.840 straight. So if I have $100 worth of Bitcoin 00:10:26.840 --> 00:10:30.879 in the trust, people are paying $140 just to 00:10:30.879 --> 00:10:33.820 own the paper claim to it? Yes. It sounds insane, 00:10:33.980 --> 00:10:36.919 but that was the market inefficiency. And Sue 00:10:36.919 --> 00:10:38.960 and Kyle, you have to remember, are arbitrage 00:10:38.960 --> 00:10:41.980 traders at heart. They saw this and said, this 00:10:41.980 --> 00:10:44.179 is free money. Walk me through the trade. How 00:10:44.179 --> 00:10:46.860 did they exploit this? It's a loop, a beautiful, 00:10:46.940 --> 00:10:50.039 simple loop. Step one, you borrow Bitcoin from 00:10:50.039 --> 00:10:52.740 a lender. Step two, you give that Bitcoin to 00:10:52.740 --> 00:10:55.899 Grayscale. In exchange, Grayscale issues you 00:10:55.899 --> 00:10:58.419 shares of GBTC at the net asset value, basically 00:10:58.419 --> 00:11:00.480 the base price, the one -to -one price. Okay. 00:11:00.840 --> 00:11:03.519 So I handed over $100 of Bitcoin. I got back 00:11:03.519 --> 00:11:07.039 a share that the market says is worth $140. I've 00:11:07.039 --> 00:11:11.659 just made $40 instantly. On paper, yes. But there's 00:11:11.659 --> 00:11:14.820 a catch, a big one. The lockup period. You can't 00:11:14.820 --> 00:11:16.740 sell those newly created shares for six months. 00:11:16.840 --> 00:11:19.440 You have to hold them. Ah, okay. So you're betting 00:11:19.440 --> 00:11:21.940 that in six months, that premium will still be 00:11:21.940 --> 00:11:25.039 there or even be higher. Correct. They were betting 00:11:25.039 --> 00:11:27.740 that the hunger for Bitcoin from institutions 00:11:27.740 --> 00:11:30.620 would stay so high that the shares would always 00:11:30.620 --> 00:11:32.980 be worth more than the coins. And for a long 00:11:32.980 --> 00:11:34.960 time, they were right. They did this loop over 00:11:34.960 --> 00:11:38.120 and over again. Borrow Bitcoin, convert to GBTC, 00:11:38.440 --> 00:11:41.759 wait six months, sell to huge profit, pay back 00:11:41.759 --> 00:11:44.120 the loan and keep the difference. Yeah. It was 00:11:44.120 --> 00:11:46.580 a money printer. Until it wasn't. Until it wasn't. 00:11:46.600 --> 00:11:49.860 Until Canada launched a Bitcoin ETF. Until other 00:11:49.860 --> 00:11:52.360 options appeared. Suddenly, institutional investors 00:11:52.360 --> 00:11:55.299 didn't need GBTC anymore. The demand dried up. 00:11:55.360 --> 00:11:58.039 And that premium, it didn't just vanish, it flipped. 00:11:58.220 --> 00:12:00.179 It went negative. Deeply negative. It went to 00:12:00.179 --> 00:12:03.600 a discount. Suddenly, that share backed by $100 00:12:03.600 --> 00:12:06.539 of Bitcoin was trading for $80, $70 on the open 00:12:06.539 --> 00:12:09.320 market. And 3AC is holding how much of this stuff? 00:12:09.620 --> 00:12:13.059 As of the end of 2020. They held almost 39 million 00:12:13.059 --> 00:12:15.960 units. They were the largest single holder in 00:12:15.960 --> 00:12:18.120 the world. And remember, they borrowed the Bitcoin 00:12:18.120 --> 00:12:21.440 to create those shares. So now they owe the lender 00:12:21.440 --> 00:12:25.159 one Bitcoin. But the asset they hold, the GBTC 00:12:25.159 --> 00:12:28.279 share, is worth less than one Bitcoin. They are 00:12:28.279 --> 00:12:30.240 completely underwater. And because they used 00:12:30.240 --> 00:12:32.200 leverage, they didn't just lose their profit, 00:12:32.259 --> 00:12:34.370 they lost the principal. And unlike a normal 00:12:34.370 --> 00:12:36.090 stock, they couldn't just sell the underlying 00:12:36.090 --> 00:12:39.370 asset. You cannot redeem GBTC shares for actual 00:12:39.370 --> 00:12:42.309 Bitcoin. It's like the Hotel California. You 00:12:42.309 --> 00:12:44.889 can check in, but you can't check out. So they 00:12:44.889 --> 00:12:46.710 were trapped, just trapped in a burning building 00:12:46.710 --> 00:12:49.830 with no exit door. Exactly. That is terrifying. 00:12:50.590 --> 00:12:52.509 But they didn't stop there, did they? Because 00:12:52.509 --> 00:12:54.570 I guess if you're losing money on one massive 00:12:54.570 --> 00:12:57.110 bet, the gambler's fallacy says you should double 00:12:57.110 --> 00:12:59.779 down on another one. Enter Lunanay. Right. While 00:12:59.779 --> 00:13:02.080 the GBTC trade was slowly bleeding them out, 00:13:02.179 --> 00:13:04.799 they made a massive directional bet on Lunanay. 00:13:04.940 --> 00:13:08.159 In February of 2022, they invested approximately 00:13:08.159 --> 00:13:12.019 $200 million in Lunanay tokens. $200 million. 00:13:12.159 --> 00:13:14.240 And this wasn't an arbitrage play, was it? This 00:13:14.240 --> 00:13:16.740 was just, I believe in this project. This was 00:13:16.740 --> 00:13:19.840 pure ideology. Suzu was close with the founders 00:13:19.840 --> 00:13:22.679 of Terraluna. He believed in the algorithmic 00:13:22.679 --> 00:13:25.370 stablecoin model. It was a statement play. He 00:13:25.370 --> 00:13:27.610 was signaling to the market the super cycle is 00:13:27.610 --> 00:13:30.710 real and Lunene is the future. He was all over 00:13:30.710 --> 00:13:32.309 Twitter pumping it. And we all know how that 00:13:32.309 --> 00:13:35.549 ended. We do. In May 2022, Lunene collapsed. 00:13:36.090 --> 00:13:39.590 It went to zero. And it happened so fast that 00:13:39.590 --> 00:13:42.850 $200 million, it essentially evaporated in a 00:13:42.850 --> 00:13:45.710 matter of days. So just to recap the situation. 00:13:46.330 --> 00:13:49.049 we have a fund that is trapped in an illiquid 00:13:49.049 --> 00:13:52.029 gbtc position that is trading at a huge discount 00:13:52.029 --> 00:13:54.750 we have a 200 million dollar hole from lunine 00:13:54.750 --> 00:13:57.559 and on top of all that The entire crypto market 00:13:57.559 --> 00:13:59.799 is crashing because of macroeconomics inflation, 00:14:00.139 --> 00:14:02.440 the Fed raising rates. The dominoes were perfectly 00:14:02.440 --> 00:14:05.240 aligned. All it needed was a push. And that push 00:14:05.240 --> 00:14:07.980 was the broader market decline in June of 2022. 00:14:08.480 --> 00:14:11.559 Bitcoin dropped. Ethereum dropped. And this is 00:14:11.559 --> 00:14:13.399 when the margin calls start coming in. Let's 00:14:13.399 --> 00:14:15.440 talk about that moment, the catalyst. Because 00:14:15.440 --> 00:14:17.240 a margin call is basically a lender calling you 00:14:17.240 --> 00:14:19.080 up and saying, hey, the stuff you gave us as 00:14:19.080 --> 00:14:20.860 collateral isn't worth enough anymore. Send more 00:14:20.860 --> 00:14:23.639 cash or we sell your stuff. Exactly. And usually. 00:14:24.360 --> 00:14:26.340 A fund will sell some liquid assets to cover 00:14:26.340 --> 00:14:30.320 it. But 3AC didn't have liquid assets. Their 00:14:30.320 --> 00:14:33.039 money was stuck in GBTC, or locked in private 00:14:33.039 --> 00:14:35.100 equity deals for projects that hadn't even launched 00:14:35.100 --> 00:14:37.500 yet, or it was completely vaporized in L &A. 00:14:37.539 --> 00:14:39.759 They had no cash. So what do they do? Do they 00:14:39.759 --> 00:14:41.639 call up their lenders and say, hey guys, we're 00:14:41.639 --> 00:14:43.620 in a bit of a bind, let's work this out? No. 00:14:43.940 --> 00:14:47.360 They went dark. This is the ghosting phase. Lenders 00:14:47.360 --> 00:14:50.139 were calling, emailing, sending messages on Telegram. 00:14:50.559 --> 00:14:53.539 Nothing. Just radio silence. I cannot imagine 00:14:53.539 --> 00:14:55.799 being a lender at Voyager Digital or Genesis 00:14:55.799 --> 00:14:58.539 realizing you lent hundreds of millions of dollars 00:14:58.539 --> 00:15:00.600 to these guys and they just won't pick up the 00:15:00.600 --> 00:15:03.539 phone. It creates absolute panic. On June 16, 00:15:03.879 --> 00:15:06.639 2022, the Financial Times broke the story that 00:15:06.639 --> 00:15:09.559 3AC had failed to meet margin calls. That was 00:15:09.559 --> 00:15:12.460 the death knell. Once that news is out, every 00:15:12.460 --> 00:15:14.220 other lender rushes to liquidate whatever tiny 00:15:14.220 --> 00:15:16.360 bits of collateral they do have. It's a run on 00:15:16.360 --> 00:15:19.580 the bank, but the bank is 3AC. Precisely. On 00:15:19.580 --> 00:15:22.049 June 22, The Wall Street Journal reported they 00:15:22.049 --> 00:15:25.070 failed to repay loans to Voyager Digital. Then 00:15:25.070 --> 00:15:28.309 on June 27, Voyager issued a formal notice of 00:15:28.309 --> 00:15:31.309 default. 3AC failed to pay a loan worth more 00:15:31.309 --> 00:15:35.230 than $665 million. Wow. That was in Bitcoin and 00:15:35.230 --> 00:15:39.250 USDC. $665 million just gone, defaulted on. And 00:15:39.250 --> 00:15:42.730 that same day, June 27, the legal hammer came 00:15:42.730 --> 00:15:46.210 down. A court in the British Virgin Islands ordered 00:15:46.210 --> 00:15:48.679 the liquidation of Three Arrows Capital. They 00:15:48.679 --> 00:15:50.919 appointed a firm called Tenio to oversee the 00:15:50.919 --> 00:15:53.100 whole mess. So the party is officially over. 00:15:53.240 --> 00:15:56.159 It was. By July 2, 3AC had filed for Chapter 00:15:56.159 --> 00:15:58.799 15 bankruptcy in the U .S. to protect its assets 00:15:58.799 --> 00:16:01.759 from being seized. And the filings? They revealed 00:16:01.759 --> 00:16:04.919 the true extent of the damage. They owed 27 different 00:16:04.919 --> 00:16:09.679 creditors a total of $3 .5 billion. Five billion. 00:16:09.759 --> 00:16:11.659 And the fund itself, what was the final tally 00:16:11.659 --> 00:16:14.299 of the loss? The fund lost in excess of $3 billion 00:16:14.299 --> 00:16:17.519 over 2021 and 2022. It goes down as one of the 00:16:17.519 --> 00:16:19.460 largest hedge fund trading losses of all time, 00:16:19.480 --> 00:16:21.659 period. It's just hard to even wrap your head 00:16:21.659 --> 00:16:23.980 around those numbers. But what makes this story 00:16:23.980 --> 00:16:27.389 so critical is that 3AC didn't die alone. They 00:16:27.389 --> 00:16:29.549 took people with them. This is the contagion 00:16:29.549 --> 00:16:31.470 we talked about in the intro. That's the so what 00:16:31.470 --> 00:16:33.909 of this story. Why does it matter if one hedge 00:16:33.909 --> 00:16:37.250 fund fails? It matters because 3AC was so interconnected, 00:16:37.470 --> 00:16:40.070 they were borrowing from everyone. So when they 00:16:40.070 --> 00:16:42.950 defaulted, those lenders suddenly had massive 00:16:42.950 --> 00:16:45.110 holes in their own balance sheets. Voyager Digital 00:16:45.110 --> 00:16:48.029 being the prime example here. Voyager was a direct 00:16:48.029 --> 00:16:51.929 casualty. The 3AC default was partially, if not 00:16:51.929 --> 00:16:55.049 mostly, responsible for Voyager's own bankruptcy. 00:16:55.750 --> 00:16:58.129 They had lent a huge chunk of their customers 00:16:58.129 --> 00:17:01.950 money to 3AC. When 3AC couldn't pay, Voyager 00:17:01.950 --> 00:17:03.830 couldn't pay its customers. I want to pause on 00:17:03.830 --> 00:17:06.130 that for a second. Why on earth would Voyager 00:17:06.130 --> 00:17:08.670 lend that much money, customer money, to one 00:17:08.670 --> 00:17:10.930 single counterparty? It just seems unbelievably 00:17:10.930 --> 00:17:13.349 reckless. It was. But you have to remember the 00:17:13.349 --> 00:17:15.690 environment at the time. 3AC was considered the 00:17:15.690 --> 00:17:17.970 risk -free rate of crypto. They were seen as 00:17:17.970 --> 00:17:20.910 too big to fail. Voyager thought if we lend to 00:17:20.910 --> 00:17:23.509 Sue and Kyle, we're safe. They were chasing yield. 00:17:23.750 --> 00:17:27.170 3AC was paying very high interest rates to borrow 00:17:27.170 --> 00:17:29.890 that crypto. Voyager needed that yield to pay 00:17:29.890 --> 00:17:31.950 their own customers those high rates they were 00:17:31.950 --> 00:17:34.029 advertising. It was a yield trap. And it wasn't 00:17:34.029 --> 00:17:36.269 just Voyager, was it? No, not by a long shot. 00:17:36.529 --> 00:17:38.890 Genesis Trading, one of the biggest prime brokers 00:17:38.890 --> 00:17:42.630 in the entire space, was hit hard. Their CEO, 00:17:42.809 --> 00:17:44.990 Michael Morrow, announced substantial losses 00:17:44.990 --> 00:17:48.640 from loans to 3AC. Their parent company, DCG, 00:17:48.839 --> 00:17:51.500 actually had to step in and assume the liabilities 00:17:51.500 --> 00:17:54.299 just to keep Genesis from collapsing right then 00:17:54.299 --> 00:17:56.880 and there. Even blockchain .com had to do layoffs 00:17:56.880 --> 00:17:59.640 because of the impact. Correct. It rippled everywhere. 00:17:59.960 --> 00:18:02.900 Even Sam Bankman Freed, and I know it is so ironic 00:18:02.900 --> 00:18:04.319 to quote him now given everything that happened 00:18:04.319 --> 00:18:07.000 later with FTX, but even he at the time blamed 00:18:07.000 --> 00:18:09.640 3AC for causing the ripple effect that froze 00:18:09.640 --> 00:18:12.519 assets across the industry. He saw 3AC as the 00:18:12.519 --> 00:18:14.500 first big domino that destabilized the whole 00:18:14.500 --> 00:18:16.819 system. It's wild to think about that timeline. 00:18:17.079 --> 00:18:20.039 3AC falls, which weakens everyone else. It creates 00:18:20.039 --> 00:18:22.339 this massive credit crunch. And then a few months 00:18:22.339 --> 00:18:25.839 later, FTX itself collapses. It was just a brutal, 00:18:25.900 --> 00:18:28.480 brutal year. It was a systematic unwinding of 00:18:28.480 --> 00:18:30.460 leverage. One piece fell and took all the others 00:18:30.460 --> 00:18:33.099 with it. Now, here is where the story shifts 00:18:33.099 --> 00:18:36.420 from a financial tragedy to, I don't even know 00:18:36.420 --> 00:18:39.279 what to call it, a farce, a mystery. Because 00:18:39.279 --> 00:18:41.759 while their company is imploding, while creditors 00:18:41.759 --> 00:18:45.670 are screaming for their billions. Suzu and Kyle 00:18:45.670 --> 00:18:48.950 Davies decide to pull a vanishing act. This is 00:18:48.950 --> 00:18:51.750 the ghosting phase we mentioned. Liquidators 00:18:51.750 --> 00:18:54.410 from Teneo reported that Davies and Zu were simply 00:18:54.410 --> 00:18:56.890 not cooperating. They weren't answering questions. 00:18:57.049 --> 00:18:59.670 They weren't providing documents. As of July 00:18:59.670 --> 00:19:03.250 8, 2022, their whereabouts were officially unknown. 00:19:03.650 --> 00:19:05.930 Just gone, like Interpol notice, gone. Pretty 00:19:05.930 --> 00:19:08.269 close to it. They eventually surfaced for an 00:19:08.269 --> 00:19:10.490 interview with Blingberg, but even that was conducted 00:19:10.490 --> 00:19:13.420 from an undisclosed location. In it, they mentioned 00:19:13.420 --> 00:19:15.319 they were planning to move to the UAE. Which 00:19:15.319 --> 00:19:17.900 conveniently has no extradition treaty with Singapore 00:19:17.900 --> 00:19:20.819 or the U .S. Precisely. They were running. And 00:19:20.819 --> 00:19:22.700 while they were running, details started coming 00:19:22.700 --> 00:19:24.579 out about the lifestyle they left behind. And 00:19:24.579 --> 00:19:26.079 this is where we absolutely have to talk about 00:19:26.079 --> 00:19:28.279 the yacht. The yacht. Much wow. That was the 00:19:28.279 --> 00:19:31.440 name. Much wow. A nod to the doge meat. Of course 00:19:31.440 --> 00:19:35.160 it was. Because nothing says Syria's institutional 00:19:35.160 --> 00:19:39.619 grade financial firm. Like a doge meme on a mega 00:19:39.619 --> 00:19:43.160 yacht. It was a $150 million vessel. The sources 00:19:43.160 --> 00:19:45.119 say it was purchased, or at least commissioned, 00:19:45.319 --> 00:19:47.880 during the peak of their success. But as the 00:19:47.880 --> 00:19:50.539 liquidity crisis hit, it became the symbol of 00:19:50.539 --> 00:19:53.740 their excess. $150 million that could have gone 00:19:53.740 --> 00:19:56.420 to creditors sunk into a boat named after a meme. 00:19:57.079 --> 00:19:59.380 It's almost too perfect a metaphor for the whole 00:19:59.380 --> 00:20:01.480 situation. But they weren't on the yacht when 00:20:01.480 --> 00:20:03.740 this all went down, were they? No. While the 00:20:03.740 --> 00:20:06.480 liquidation was happening in June 2022, while 00:20:06.480 --> 00:20:07.900 their employees were wondering if they still 00:20:07.900 --> 00:20:10.619 had jobs, the New York Times reported that Sue 00:20:10.619 --> 00:20:13.680 and Kyle were in Bali. Bali, surfboards and smoothie 00:20:13.680 --> 00:20:16.519 bowls. Suzu was reportedly trying surfing for 00:20:16.519 --> 00:20:19.579 the first time. Kyle Davies was dabbling in painting 00:20:19.579 --> 00:20:22.019 and meditating. I have to quote Davies here because 00:20:22.019 --> 00:20:24.259 this line drove me crazy when I read it. He said, 00:20:24.339 --> 00:20:26.640 and I quote, I really spent so much time meditating 00:20:26.640 --> 00:20:29.160 in Bali that I'm really just pretty zenned out. 00:20:29.259 --> 00:20:32.400 It is a staggering lack of self -awareness. Or. 00:20:32.809 --> 00:20:34.690 Maybe it's the ultimate awareness. What do you 00:20:34.690 --> 00:20:36.690 mean? You've just destroyed billions of dollars 00:20:36.690 --> 00:20:38.930 of wealth. People have lost their life savings 00:20:38.930 --> 00:20:41.369 because of the contagion you caused. And you 00:20:41.369 --> 00:20:45.230 are zenned out painting in Bali. It's so far 00:20:45.230 --> 00:20:48.309 beyond normal human reaction. It's the ultimate 00:20:48.309 --> 00:20:51.220 pivot. From Master of the Universe to Zen Monk 00:20:51.220 --> 00:20:53.240 in three easy steps. It feels like a defense 00:20:53.240 --> 00:20:55.380 mechanism. If you pretend it doesn't matter, 00:20:55.519 --> 00:20:58.339 maybe the guilt doesn't crush you. Or perhaps 00:20:58.339 --> 00:21:01.140 it reveals how they viewed the money all along 00:21:01.140 --> 00:21:04.700 as numbers on a screen. A game. And if the game 00:21:04.700 --> 00:21:06.920 resets, you just go meditate until the next round 00:21:06.920 --> 00:21:09.079 starts. And we can't forget the Singapore residents. 00:21:09.440 --> 00:21:12.140 Before they fled... Zhu and his family lived 00:21:12.140 --> 00:21:14.920 in what's called a good class bungalow in Singapore. 00:21:15.140 --> 00:21:18.039 Which is real estate speak for unbelievably obscenely 00:21:18.039 --> 00:21:20.619 expensive mansion. Yes. But it wasn't just a 00:21:20.619 --> 00:21:23.019 house. It had a permaculture farm. A permaculture 00:21:23.019 --> 00:21:25.779 farm. An elaborate system of lakes and gardens 00:21:25.779 --> 00:21:28.380 designed to replicate self -sustaining ecosystems. 00:21:29.119 --> 00:21:31.960 It was home to ducks, chickens, and as you mentioned, 00:21:32.079 --> 00:21:34.579 numerous types of dragonflies. There is something 00:21:34.579 --> 00:21:38.599 deeply, deeply ironic about that. They were obsessed 00:21:38.599 --> 00:21:40.900 with building a self -sustaining ecosystem in 00:21:40.900 --> 00:21:43.420 their backyard, filled with dragonflies and ducks, 00:21:43.640 --> 00:21:45.680 while simultaneously destroying the financial 00:21:45.680 --> 00:21:48.079 ecosystem they were a part of. It speaks to a 00:21:48.079 --> 00:21:50.599 certain type of mindset, I think. The desire 00:21:50.599 --> 00:21:53.720 to control complex systems. Whether it is an 00:21:53.720 --> 00:21:56.299 algorithmic trading strategy or a permaculture 00:21:56.299 --> 00:21:58.920 pond, they believe they could engineer a perfect 00:21:58.920 --> 00:22:02.380 loop. But in finance, unlike in a pond, you can't 00:22:02.380 --> 00:22:04.740 control the external variables. You can't control 00:22:04.740 --> 00:22:07.319 the Fed. You can't control panic. And you definitely 00:22:07.319 --> 00:22:10.339 can't control the price of LNA. So they're in 00:22:10.339 --> 00:22:12.859 Bali. They're zenned out. The yacht is somewhere. 00:22:13.200 --> 00:22:15.200 Actually, I read the yacht was repossessed before 00:22:15.200 --> 00:22:16.819 it was even fully delivered, right? That's correct. 00:22:16.980 --> 00:22:18.519 The shipbuilder eventually sold it to someone 00:22:18.519 --> 00:22:21.019 else. Much wow. Never really set sail under their 00:22:21.019 --> 00:22:23.380 command. Another perfect metaphor. OK, so the 00:22:23.380 --> 00:22:25.680 money is gone, but the law does have a long arm. 00:22:26.240 --> 00:22:28.839 Let's fast forward to the consequences. Did they 00:22:28.839 --> 00:22:31.609 get away with it? Well, yes and no. It's complicated. 00:22:31.890 --> 00:22:35.349 In September of 2023, Suzu was actually arrested. 00:22:35.670 --> 00:22:38.509 Finally? Where? At Changki Airport in Singapore. 00:22:39.089 --> 00:22:41.549 He was trying to leave the country. Trying to 00:22:41.549 --> 00:22:44.049 fly out, probably back to the Zen life. He was 00:22:44.049 --> 00:22:46.849 arrested pursuant to committal orders. Basically, 00:22:46.869 --> 00:22:48.890 he was sentenced to four months in prison. Four 00:22:48.890 --> 00:22:52.430 months? For losing $3 billion? That's incredibly 00:22:52.430 --> 00:22:55.529 late. No, and this is a really important distinction. 00:22:55.789 --> 00:22:58.390 He wasn't sentenced for the financial loss itself. 00:22:59.180 --> 00:23:01.960 Being bad at trading isn't a crime, usually. 00:23:02.500 --> 00:23:05.500 Unless there is proven fraud, losing a lot of 00:23:05.500 --> 00:23:07.859 money is just losing a lot of money. So what 00:23:07.859 --> 00:23:10.660 was the prison time for? He was sentenced for 00:23:10.660 --> 00:23:12.839 failing to cooperate with the liquidators. It 00:23:12.839 --> 00:23:15.160 was a contempt of court issue. Ah, okay. So it 00:23:15.160 --> 00:23:17.240 was for the ghosting, not for the losing. Correct. 00:23:17.299 --> 00:23:20.740 And his review of prison was, well, it was surprising. 00:23:21.019 --> 00:23:23.319 Do tell. He later described his time in prison 00:23:23.319 --> 00:23:26.390 as... Really enjoyable. You're kidding me? Enjoyable? 00:23:26.490 --> 00:23:28.170 He said it was enjoyable because he didn't have 00:23:28.170 --> 00:23:31.950 internet or caffeine or alcohol. He treated it 00:23:31.950 --> 00:23:34.630 like a forced detox retreat. He said he read 00:23:34.630 --> 00:23:37.529 books and did push -ups. Only Suzu could turn 00:23:37.529 --> 00:23:40.190 a prison sentence into a wellness anecdote. Five 00:23:40.190 --> 00:23:42.769 stars? Great for dopamine fasting? Would recommend. 00:23:43.230 --> 00:23:45.829 It's unbelievable. It fits the pattern, doesn't 00:23:45.829 --> 00:23:48.529 it? Yeah. Reframing every single failure as part 00:23:48.529 --> 00:23:51.819 of the grand journey. Meanwhile... Kyle Davies's 00:23:51.819 --> 00:23:54.240 location remained unknown during Zoo's arrest, 00:23:54.500 --> 00:23:56.940 though he was subject to the same committal order. 00:23:57.339 --> 00:23:59.980 He managed to stay out of the net. So Zoo does 00:23:59.980 --> 00:24:02.640 his time. Davies is in the win. You would think 00:24:02.640 --> 00:24:05.019 after all this public shaming, after the bankruptcy, 00:24:05.200 --> 00:24:06.900 after the prison stint, they would just fade 00:24:06.900 --> 00:24:09.859 away. Maybe open a real surf shop in Bali. You 00:24:09.859 --> 00:24:11.940 would think. But this is where the story gets 00:24:11.940 --> 00:24:14.380 into zombie territory. They didn't leave the 00:24:14.380 --> 00:24:17.259 industry. Despite the collapse, despite the reputation 00:24:17.259 --> 00:24:19.799 damage, they came back. And they didn't just 00:24:19.799 --> 00:24:22.599 come back as traders. They started an exchange. 00:24:22.740 --> 00:24:26.279 Yes. In late 2022, they launched OPNX, which 00:24:26.279 --> 00:24:28.880 stands for Open Exchange, based out of Hong Kong. 00:24:29.079 --> 00:24:31.799 And get this, it was a marketplace for trading 00:24:31.799 --> 00:24:34.599 bankruptcy claims. That is unbelievably ironic. 00:24:34.779 --> 00:24:37.099 They create a market to trade the debt of companies 00:24:37.099 --> 00:24:39.059 like the ones they helped destroy. It is the 00:24:39.059 --> 00:24:42.099 ultimate cynical pivot. We broke it. Now let 00:24:42.099 --> 00:24:44.559 us help you trade the pieces. They were allowing 00:24:44.559 --> 00:24:49.029 people who lost money in FTX Celsius. or Voyager 00:24:49.029 --> 00:24:51.470 to sell their claims for immediate liquidity. 00:24:52.039 --> 00:24:54.859 It feels like an arsonist starting a fire extinguisher 00:24:54.859 --> 00:24:57.339 company the very next day. Davies even tweeted 00:24:57.339 --> 00:24:59.599 about it. He said, and this is a direct quote, 00:24:59.980 --> 00:25:03.440 I'm getting early 3AC vibes all over again. Nothing 00:25:03.440 --> 00:25:06.359 compares to the energy of a startup. Early 3AC 00:25:06.359 --> 00:25:08.680 vibes. I don't think that's the flex he thinks 00:25:08.680 --> 00:25:11.019 it is. Hey, remember that time we started the 00:25:11.019 --> 00:25:13.420 thing that eventually imploded and ruined countless 00:25:13.420 --> 00:25:15.619 people? I'm getting that feeling again. It shows 00:25:15.619 --> 00:25:17.940 a complete disconnect from the trauma they caused. 00:25:18.430 --> 00:25:20.329 Or maybe it shows that they know exactly what 00:25:20.329 --> 00:25:22.490 they're doing. They know that in crypto, controversy 00:25:22.490 --> 00:25:25.569 sells. And they didn't stop there. In early 2024, 00:25:25.890 --> 00:25:27.930 they joined as advisors for a platform called 00:25:27.930 --> 00:25:33.990 OX .UN. O -X -A -F -U -N. The name alone. Another 00:25:33.990 --> 00:25:36.710 exchange. This one, a gamified trading platform 00:25:36.710 --> 00:25:39.690 with a dual token model. Gamified trading. Just 00:25:39.690 --> 00:25:41.470 what the world needs more of. Because the problem 00:25:41.470 --> 00:25:43.730 with crypto is that it wasn't enough like a video 00:25:43.730 --> 00:25:46.869 game. And then, late 2024, the cherry on top. 00:25:47.259 --> 00:25:50.400 A meme coin, of course. It had to end with a 00:25:50.400 --> 00:25:53.640 meme coin. The 3AC token. Yeah. A meme coin project 00:25:53.640 --> 00:25:56.359 they were directly connected to. It had a 1 % 00:25:56.359 --> 00:25:58.960 transaction tax, high insider concentration, 00:25:59.519 --> 00:26:02.299 basically all the red flags of a quick cash grab. 00:26:02.539 --> 00:26:05.059 And it faced criticism, I assume. Massive criticism. 00:26:05.140 --> 00:26:09.460 It was volatile, illiquid. Basically a microcosm 00:26:09.460 --> 00:26:12.059 of everything risky and predatory about crypto 00:26:12.059 --> 00:26:14.500 packaged with their infamous brand on it. It's 00:26:14.500 --> 00:26:17.299 baffling. If I lost $3 billion, I think I would 00:26:17.299 --> 00:26:19.400 change my name and move to a cabin in the woods. 00:26:19.960 --> 00:26:22.440 These guys launch a token named after their own 00:26:22.440 --> 00:26:24.880 failure. It raises a fascinating question about 00:26:24.880 --> 00:26:27.339 the crypto industry itself. In traditional finance, 00:26:27.440 --> 00:26:29.140 if you blow up a bank, you are usually done. 00:26:29.299 --> 00:26:33.170 You are a pariah. In crypto, notoriety is a form 00:26:33.170 --> 00:26:35.710 of currency. The fact that they are famous even 00:26:35.710 --> 00:26:38.150 for failure gives them attention, which they 00:26:38.150 --> 00:26:40.069 can then monetize. That is a deeply depressing 00:26:40.069 --> 00:26:42.049 thought. It rewards the spectacle regardless 00:26:42.049 --> 00:26:44.390 of the outcome. Okay, let's bring this home. 00:26:44.410 --> 00:26:46.329 We've covered the origin, the rise, the crash, 00:26:46.529 --> 00:26:48.990 the yacht, the prison detox, and the zombie comeback. 00:26:49.589 --> 00:26:52.170 What is the big takeaway here? The story of Three 00:26:52.170 --> 00:26:55.289 Arrows Capital is the definitive lesson in leverage 00:26:55.289 --> 00:26:58.730 and contagion in the modern crypto era. It showed 00:26:58.730 --> 00:27:01.250 us that the crypto ecosystem was not a decentralized 00:27:01.250 --> 00:27:04.490 mesh of independent actors. It was a tightly 00:27:04.490 --> 00:27:07.990 wound ball of yarn. When one thread Lunene pulled, 00:27:08.559 --> 00:27:12.819 It unraveled 3AC. When 3AC unraveled, it took 00:27:12.819 --> 00:27:16.039 down the lenders like Voyager and Genesis. It 00:27:16.039 --> 00:27:18.359 was a house of cards where everyone was borrowing 00:27:18.359 --> 00:27:20.859 from everyone else to buy the same assets. Exactly. 00:27:20.900 --> 00:27:23.660 And the assets backing it all were volatile tokens 00:27:23.660 --> 00:27:26.220 that could vanish in value overnight. It was 00:27:26.220 --> 00:27:29.400 an $18 billion illusion built on the idea that 00:27:29.400 --> 00:27:31.559 the music would never, ever stop. And when the 00:27:31.559 --> 00:27:33.519 music stopped, there were no chairs left. And 00:27:33.519 --> 00:27:35.279 the people running the game just walked out the 00:27:35.279 --> 00:27:38.119 back door to meditate in Bali. Liquidators are 00:27:38.119 --> 00:27:41.160 still seeking to recover $1 .3 billion from the 00:27:41.160 --> 00:27:44.619 founders. That money belongs to creditors. It 00:27:44.619 --> 00:27:46.299 belongs to the people who trusted the system. 00:27:46.500 --> 00:27:48.460 And meanwhile, the founders are out there launching 00:27:48.460 --> 00:27:50.819 gamified exchanges and trying to get people to 00:27:50.819 --> 00:27:53.440 buy their meme coin. Which leads to the provocative 00:27:53.440 --> 00:27:56.460 thought for you to think about today. If the 00:27:56.460 --> 00:27:59.160 architects of a $3 billion collapse can return 00:27:59.160 --> 00:28:01.759 to the industry within two years to launch meme 00:28:01.759 --> 00:28:04.759 coins and new exchanges, has the industry actually 00:28:04.759 --> 00:28:07.750 learned anything about due diligence? Or are 00:28:07.750 --> 00:28:11.210 we all just waiting for the next much wow? I 00:28:11.210 --> 00:28:13.970 fear it might be the latter. As long as there 00:28:13.970 --> 00:28:16.369 is greed, there will be people like Sue and Kyle 00:28:16.369 --> 00:28:18.930 willing to sell the dream of infinite leverage. 00:28:19.410 --> 00:28:21.730 On that uplifting note, thank you for listening 00:28:21.730 --> 00:28:23.809 to this deep dive into Three Arrows Capital. 00:28:24.130 --> 00:28:26.829 It's a wild story, but a necessary one to understand 00:28:26.829 --> 00:28:29.049 the world of crypto. Always a pleasure. Keep 00:28:29.049 --> 00:28:31.150 questioning the numbers and always ask what the 00:28:31.150 --> 00:28:32.789 collateral is. We'll see you next time.