Life After the Collapse of Sanjian Capital: Surfing, Meditation, and World Travel for the Founders

Life After Sanjian Capital's Collapse: Surfing, Meditation, and Travel for Founders

Author: David Yaffe-Bellany, The New York Times

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

Translated by: Hu Tao, ChainCatcher

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

He flew to Bali. With his company in liquidation and regulators investigating on two continents, Davies spent his days sketching in cafes and reading Hemingway on the beach.

He also went sightseeing. He traveled to Thailand, where fried oysters cost just a few dollars, and admired local architecture in Malaysia. He posted a photo of himself petting a tiger tethered to a post at a private zoo in Dubai and attended the Formula One Grand Prix race in Bahrain.

On a clear evening, Davies and a group of cryptocurrency industry colleagues gathered on a rooftop in Bali to pick mushrooms. “You look at the stars and they move,” he recalled last month over dinner at a seafood restaurant in Barcelona, where he was vacationing with his wife and two young daughters. “You touch the grass and it feels like, not like normal grass.”

It turns out that life as a crypto industry pariah isn’t so bad.

A year ago, Three Arrows Capital, the hedge fund founded by Davies, 36, and Su Zhu, collapsed almost overnight. They had been cryptocurrency superstars, idolized by hundreds of thousands of Twitter followers for their trading acumen and bold market predictions. They were fixtures on the crypto podcast circuit, their influence allowing them to borrow hundreds of millions of dollars from leading firms and make big bets on the industry’s future.

When their hedge fund failed, the entire industry went down with it. The ensuing crisis wiped out the savings of millions of amateur investors and forced other companies into bankruptcy.

However, according to their own accounts, Davies and Zhu have been living comfortably. They left the headquarters 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 instructor. His old friends bad-mouthed him in the media, but he made new ones, including surfers and UFC fighters.

“They were very sympathetic to me,” Zhu said in his Singapore mansion. “They were defeated in a big battle, lost sponsorship or something, and everyone was crying. But the boxer himself – his thoughts had already turned to the next game.”

Last year’s collapse of the cryptocurrency industry, which wiped out more than $1 trillion from the market, has seen some of the industry’s major players 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. Sam Bankman-Fried, founder of the FTX exchange, is under house arrest at his childhood home in Palo Alto, California, awaiting trial on fraud charges. Do Kwon, the Korean entrepreneur who created the failed Luna cryptocurrency, was arrested in Montenegro this spring after evading authorities for 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 took advantage of tax havens.

Three Arrows Capital’s founders are two of the most prominent examples. Despite managing funds worth more than $4 billion at their peak, they still live comfortable lives. Davies and Zhu declined to provide an estimate of their total wealth, but said they had saved enough money over the years and didn’t need to work anymore.

Neither side is willing to apologize for the collapse. Three Arrows owes creditors $3.3 billion; 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. In October last year, Bloomberg reported that U.S. regulatory authorities were investigating whether Davies and Zhu had lied to Three Arrows Capital investors about their financial condition.

Davies and Zhu insist they did nothing wrong. They say they faced death threats, but point out that no government agency has prosecuted or requested their arrest.

A friend recently asked Davies if he had any regrets. “Regrets about 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. Customers will be able to buy and sell claims on bankrupt assets of cryptocurrency companies such as FTX and Three Arrows Capital itself.

In a promotional document sent to investors in January, Davies and Zhu referred to their new company under the codename “GTX,” the successor to Bankman-Fried’s failed exchange.

“I just thought it was funny,” Zhu said.

The Crypto “Super Cycle”

Davies and Zhu led parallel lives. They grew up in the Northeast 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 and opened a café where they taught local workers how to play online poker and then bet on them. As a reward, they could take a cut of the winnings.

But their plan to create an army of South American card sharks had a fatal flaw: neither of them spoke Spanish. They mistakenly assumed that working-class Argentines would understand English.

After graduating from Columbia, Davies and Zhu worked at Credit Suisse for a while before founding Three Arrows Capital in their mid-20s in 2012. They started trading financial products linked to foreign currencies, but turned to cryptocurrencies around 2019 as the market began to recover from a severe slump.

By 2021, with cryptocurrency prices soaring to record levels, Davies and Zhu managed billions of dollars, invested in cryptocurrency startups, and borrowed hundreds of millions of dollars to make bigger bets. Zhu amassed 500,000 followers on Twitter, promoting his theory of a cryptocurrency “super cycle” that predicts bitcoin prices will rise to over $1 million.

Davies said he thinks running a business is not much different from playing video games. “If you’re really good at games, you make a lot of money,” he said.

For a time, the bets paid off. Zhu reportedly spent $35 million on a high-end home, a type of luxury residence popular among Singaporean finance elites, and settled into a quiet, tree-lined neighborhood on the island.

Davies pursued a more extravagant reward. “I basically told Zhu, ‘I’m going to buy a boat. I need it,'” he recalled. “Zhu was like, ‘Well, I need it too.’ And I was like, ‘Alright, then we need to be together.'”

They picked out a super yacht designed by Italian shipyard Sanlorenzo, with five decks, two extendable terraces, and a swimming pool. They named the boat Much Wow, after a meme popularized by investors in the jokingly named cryptocurrency Dogecoin.

The yacht became Davies’ baby. Inside, he planned to display a collection of irreplaceable tokens, or unique digital collectibles known as NFTs. One level was set up as a hydroponic garden – added at the request of Zhu’s wife, who’s a biologist and an avid gardener.

It was an exciting time. “I was actually looking at some islands too,” Davies said. But as he was putting the final touches on the boat, the cryptocurrency market was headed for a crisis. In Singapore, Davies and Zhu began hanging out with the founder of Luna. In February 2022, they bought $200 million worth of Luna tokens.

Three months later, Luna lost all its value in just a few days. The crash sent the prices of all major cryptocurrencies plummeting. Many of Three Arrows’ other bets quickly turned sour.

As the market collapsed, creditors demanded they repay hundreds of millions of dollars – amounts of assets Three Arrows no longer owned.

Behind the scenes, chaos reigned. According to documents filed with the British Virgin Islands court, Three Arrows had attempted to borrow 5,000 bitcoins (worth $125 million at the time) from cryptocurrency lending firm Genesis to repay a separate creditor’s loan. (Zhu says claims of financial impropriety are inaccurate.) As the fate of the company became clear, its lenders complained Davies and Zhu weren’t responding to messages.

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

In a letter to the judge overseeing Voyager’s bankruptcy, clients described the impact of these life-changing losses. One investor who had $30,000 invested in Voyager wrote, “Losing this money and seeing no end to it has been unbearable for my family.” “Most nights I wake up and just walk up and down the stairs, reflecting on my mistakes.”

On Twitter, angry cryptocurrency investors accused Davies and Zhu of hastening the market’s collapse. Singapore’s financial regulatory agency criticized Three Arrows Capital, saying the company had 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 schemer Bernie Madoff.

Zhu said his lawyers assured him that Three Arrows’ actions were “whiter than white.” When the company was liquidated in June of last year, he and Davies were in Bali. Zhu was learning to surf. Davies had bought some paints and was trying his hand at still lifes.

“Eating really fatty pork dishes, drinking lots of alcohol, and then going to the beach to meditate,” Davies recalled of his travels. “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 over $3 billion owed to creditors. For weeks, the founders’ whereabouts were unknown. The liquidators complained in court that Davies and Zhu had withheld important records.

According to the liquidators’ statements in court, in a July conference call, the founders turned off their cameras on Zoom and remained silent as Three Arrows’ new supervisors repeatedly questioned them.

Davies and Zhu said they had been cooperating with the legal process. But in December, the liquidators’ lawyer Adam Goldberg told the bankruptcy judge that the two had “failed to deliver information and assets to creditors as required by their duties.”

“The actions of the founders indicate that they are hiding something,” Goldberg said.

Comeback

After traveling to Bali and Dubai, Zhu returned to Singapore, where he lives with his wife and two young daughters in a luxury mansion he bought during his heyday at Three Arrows. Last year, the couple transformed their yard into a sustainable agriculture farm—a carefully designed system of lakes and gardens designed to replicate self-sustaining ecosystems in nature. It is home to ducks, chickens, and a variety of dragonflies.

On a May afternoon, a bare-chested man wandered among rows of vegetation, taking pictures incessantly. “One of Singapore’s most important insect experts,” Zhu explained.

Like many crypto evangelists, Zhu has a penchant for bold declarations. He predicted that the debate over cryptocurrencies could trigger a civil war in the United States, and he often frames his observations of the market in the context of world history.

“We’re entering a knightly age,” he said at a dinner last month. An hour or two later, he added, “We are in the golden age of slander.”

As Zhu led the tour of the site, he stopped at the chicken coop and talked about economic history. “I’ve always been anti-capitalist,” he said. He also insisted that he is “actually personally against yachts.”

His wife looked at him skeptically. “You do have dreams of sailing around the world,” she said.

Much Wow never set sail. According to court records, Davies and Zhu failed to make the final payment, and the shipyard canceled its contract with them; the yacht was sold to a new buyer, and Three Arrows’ liquidators demanded $30 million from the sale. The liquidators 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 to have handed over the records to the company’s new management. But the liquidators say they still lack key materials, and the founders’ lack of cooperation has doubled the cost of the recovery process.

“At their most recent hearing, one of them seemed to be tweeting from a boat in Dubai,” said Russell Crumpler, senior managing director of Teneo, who led the liquidation of the British Virgin Islands.

So far, government investigations into Three Arrows Capital have not led to charges. A spokesperson for the Monetary Authority of Singapore stated that the agency has been “assessing if there are any further breaches,” which last year resulted in rebukes for Davies and Zhu. Representatives for the US Securities and Exchange Commission and Commodity Futures Trading Commission declined to comment.

Davies said he was preparing to leave Three Arrows Capital by the end of last summer. “I spent so much time meditating in Bali that I really relaxed,” he said.

He and Zhu were discussing new business investments, including a co-living plan in Bali that may involve a cryptocurrency, in the months following the collapse of their company.

“The waves – they just keep coming,” Zhu said, using a surfing metaphor. “You might hit a big one. It’s okay. You can hurt yourself, and then you heal, and then you get the next one.”

Davies and Zhu began rebuilding strong public profiles starting around the time of the FTX failure in November of last year. Suddenly, a bigger villain was in town.

Davies continued on CNBC to argue, without citing too much evidence, that FTX’s Bankman-Fried manipulated the crypto market to intentionally harm Three Arrows Capital. (Mr. Bankman-Fried denied the accusation.) A host asked Davies if he had moved to Bali because Indonesia does not have an extradition treaty with the US.

“No,” he replied. “It’s just a nice place.”

Last year, Davies and Zhu founded their new company, Open Exchange, with CoinFLEX founders Mark Lamb and Sudhu Arumugam. CoinFLEX was a cryptocurrency company that collapsed last year.

The start of the business did not go smoothly. Some companies listed as investors on Open Exchange’s Twitter account denied any involvement. A financial regulatory authority in Dubai said Open Exchange was operating without a license.

Zhu said he was dismissing the criticism. On Twitter, he responded to a negative Wall Street Journal article with a quote from 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’ve created 75 jobs,” he said over dinner in Singapore. “At least those people like me.”

Open Exchange launched its own cryptocurrency, called OX, this month. The price soared in a matter of days. “I feel the early Three Arrows Capital again,” Davies wrote on Twitter on Tuesday. “Nothing beats the vitality of a start-up company.”

Privately, Davies has been encouraging Three Arrows’ creditors to trade their bankruptcy claims on Open Exchange. In January, he invited creditors to a “temporary 3AC creditors meeting.” But according to two people familiar with the matter, Davies did most of the talking on the call; he ended the meeting just as someone tried to ask a question.

Last month in Barcelona, Davies seemed relaxed and enthusiastic, talking about the “amazing cafes” on La Rambla, the busy boulevard that cuts through the city center. On a Saturday night, he had a very late dinner at a seafood restaurant near the beach, ordering oysters, fried balls, local wine and three whiskeys.

At the end of the meal, Davies talked animatedly about business ideas. He said he had asked about opening a chicken restaurant in Dubai, possibly using cloud kitchens, without a storefront. At one point, he and Zhu talked about making a movie about the Luna crash.

Davies has also thought about entering the artificial intelligence industry. “I’m willing to believe I can create two more companies,” he said, “but I agree with the idea of ​​completely retiring now.”

He left the restaurant at midnight, walking along a busy street lined with outdoor bars and the murmurs of late-night conversations in the distance. He was in high spirits.

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

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