When Su Zhu's Empire of Leverage Crumbled: The Three Arrows Capital Disaster

In the cryptocurrency world, few collapses have been as dramatic or consequential as what happened to Su Zhu and Three Arrows Capital. A fund that commanded over $3 billion in assets evaporated in mere days, leaving thousands of investors devastated and reshaping the industry’s understanding of risk. This is not merely a story of financial failure—it’s a cautionary tale about the dangers of unchecked ambition and the illusion of invincibility in crypto markets.

From Anonymous Trader to Crypto Celebrity: Su Zhu’s Rapid Rise

Su Zhu’s journey began humbly. In 2012, he was just another trader at Deutsche Bank, working within the rigid confines of traditional finance. But he harbored different aspirations. By 2021, the Singaporean entrepreneur had transformed into a household name in cryptocurrency circles. Co-founding Three Arrows Capital with Kyle Davies, Su Zhu cultivated an image of genius—someone who understood crypto’s potential better than anyone else.

His public persona was intoxicating: bold, fearless, willing to make massive bets while others hesitated. He accumulated followers, influence, and most importantly, trust. Wealthy investors, institutional players, and fellow hedge funds all wanted a piece of whatever magic Su Zhu was performing. His confidence seemed justified when every bet appeared to pay off. Behind this glittering façade, however, lay a financial structure built on quicksand.

The Leverage Trap: How Borrowing Became Religion

The real secret behind 3AC’s dazzling returns was not superior market insight—it was aggressive leverage. Su Zhu transformed Three Arrows Capital into what could best be described as a borrowing machine. The fund tapped into virtually every lending facility available: BlockFi extended credit, Voyager provided access to capital, Genesis Global Capital supplied funds. If someone would lend, Su Zhu would borrow.

But here’s where it gets dangerous: the borrowed money wasn’t used to purchase assets and hold them. Instead, it was leveraged to borrow even more money. Imagine using $2 billion in crypto holdings as collateral to borrow $1 billion, then using that $1 billion to borrow additional funds—a chain of debt multiplication that turns modest gains into outsized profits on the way up, but catastrophic losses on the way down.

Su Zhu’s risk management was essentially non-existent. While discussing grandiose theories about a “supercycle” on social media, he simultaneously spent millions on flashy NFT collections and maintained the appearance of a tech titan living large. The wealth pyramid that impressed industry observers was actually a house of cards: each card represented leverage stacked upon leverage, each one essential to preventing the entire structure from collapsing. It was a bet that crypto prices would never meaningfully fall—a bet he was destined to lose.

The Trigger: LUNA’s Collapse Shatters Everything

In May 2022, the crypto world experienced a seismic shock. Terra’s LUNA token, which Three Arrows Capital had invested approximately $500 million in, underwent a catastrophic collapse. For most investors, this would have been a painful but survivable blow. For Su Zhu, it was a death sentence.

When LUNA crumbled, so did the collateral backing 3AC’s mountain of debt. Bitcoin and other major cryptocurrencies followed LUNA downward, creating a cascade of margin calls. Suddenly, the $2 billion in assets that secured $1 billion in borrowing became $1 billion in assets still backing $1 billion in debt. The fund’s position shifted from profitable to insolvent almost overnight.

Creditors began circling. BlockFi, Voyager, Genesis, and other lenders demanded their money back. They wanted answers to one simple question: where was their capital? But Su Zhu had already vanished. He ceased responding to calls, ignored messages, and became completely unreachable—as if he had evaporated from the industry he once dominated.

The Reckoning: Bankruptcy and International Flight

Three Arrows Capital formally filed for bankruptcy, leaving a staggering $3.5 billion void between what was owed and what could be recovered. The collapse triggered a domino effect: BlockFi imploded in November 2022, Voyager surrendered in July 2022, and Genesis teetered toward insolvency. Thousands of retail investors watched their life savings disappear. The crypto industry suffered a credibility crisis from which it would take years to recover.

Su Zhu, rather than facing these consequences, chose a different path. He relocated to Dubai, a jurisdiction known for attracting individuals with complicated financial histories. There, he attempted to maintain a lifestyle of luxury while his empire burned. He was no longer the celebrated visionary—he was a fugitive attempting to evade accountability.

This reprieve proved temporary. In September 2023, Su Zhu’s luck finally ran out. Attempting to flee Singapore using fraudulent travel documents at Changi Airport, he was apprehended by authorities. What followed was not a triumphant comeback narrative but a criminal prosecution. Facing charges related to fraud and misappropriation, Su Zhu confronted the possibility of up to 10 years imprisonment. The $50 million mansion in Singapore that once symbolized his success was seized. The rare NFTs he’d proudly displayed became worthless relics. His reputation—perhaps his most valuable asset—lay in ruins.

The Lessons: Why Leverage Always Exacts a Price

Su Zhu’s downfall provides several critical lessons for anyone participating in cryptocurrency markets. First and most obviously: leverage amplifies both gains and losses. When markets rise, leveraged positions create outsized profits that feel like genius-level returns. When markets fall, leverage turns manageable losses into extinction-level events.

Second, the illusion of control is seductive. Su Zhu believed he understood crypto markets better than the market itself. This hubris—common among successful traders—blinded him to the leverage accumulating in his positions and the systemic fragility it created. Risk management isn’t optional for large portfolio managers; it’s the difference between long-term sustainability and spectacular failure.

Third, rapid success without humility is a warning sign, not a validation. The fact that Su Zhu’s early bets paid off didn’t prove his strategy was sound; it proved he was lucky. And when luck inevitably reversed, there was nothing underneath to catch him. His influence, his following, his reputation—none of these could be converted into solvency when the mathematics of his positions turned against him.

The cryptocurrency industry continues to attract ambitious entrepreneurs like Su Zhu. What this case demonstrates is that ambition without appropriate risk controls doesn’t create legendary success stories—it creates cautionary tales. The market doesn’t care about your confidence, your track record, or your social media presence. When the leverage catches up, it catches up completely.

Su Zhu’s story serves as a permanent reminder: in crypto, what appears to be an empire can actually be an elaborate illusion. Real wealth isn’t measured by how much you can borrow or how much you can make in a single bull market. It’s measured by how much you can preserve through multiple market cycles. The investors who survive and eventually prosper are those who treat leverage as a tool to be deployed carefully, not as a path to permanent riches. Su Zhu learned this lesson far too late—in a prison cell, awaiting sentencing.