The Su Zhu Factor: How Three Arrows Capital Lost Billions Through Extreme Leverage

When Su Zhu was climbing the ranks at Deutsche Bank as a trader back in 2012, nobody could have predicted that by 2021, he’d be leading one of crypto’s most dominant hedge funds — or that it would all evaporate in just 72 hours. Three Arrows Capital, or 3AC as it’s known, became synonymous with bold market plays and aggressive wealth accumulation. But beneath the surface lay a fundamental misunderstanding of risk that would eventually trigger one of the most devastating collapses in crypto history.

The Architect of a Crypto Empire

Su Zhu’s trajectory seemed unstoppable. From his days at a traditional banking powerhouse, he transitioned into digital assets at precisely the right moment. By 2021, Three Arrows Capital had grown into a behemoth, managing billions in assets under management (AUM) and wielding significant influence over market movements. The fund commanded respect — and capital — from institutional investors, billionaires, and fellow hedge funds who saw 3AC’s aggressive positioning as a sign of genius-level market timing.

The problem? Genius-level timing can quickly turn to recklessness when leverage enters the equation.

Built on Borrowed Money — A Foundation of Sand

Three Arrows Capital didn’t just invest its own capital. The fund borrowed extensively from major institutions in the crypto ecosystem: BlockFi, Voyager, and Genesis became creditors in a game where Su Zhu kept raising the stakes. Each loan funded bolder positions, each position justified another layer of borrowing. It was a strategy designed for one scenario: an endless bull market.

On paper, the gamble looked calculated. In reality, it was a house of cards waiting for the smallest breeze. The audacity peaked with a $500 million bet on LUNA, the Terra ecosystem’s native token. When LUNA imploded in 2022 — collapsing nearly completely in just 48 hours — the fund faced an immediate liquidity crisis that no amount of leverage could fix.

The Domino Effect Nobody Could Stop

The moment LUNA vaporized, creditors who’d loaned billions to 3AC realized their collateral was evaporating. Bitcoin tumbled as liquidation cascades swept through the market. BlockFi, Voyager, and Genesis found themselves facing massive losses. Su Zhu, the once-celebrated architect of Three Arrows Capital, essentially disappeared from public view as the empire crumbled around him.

What started as a perfect storm in LUNA’s ecosystem became a systemic shock that exposed the fragility of overleveraged positions throughout crypto. The chain reaction was brutal and immediate — there was no time for recovery strategies, no opportunity to gradually unwind positions. The collapse happened at digital speed.

The Three Fatal Flaws That Broke 3AC

The post-mortem on Three Arrows Capital revealed three critical weaknesses:

No Risk Management Framework: The fund operated without the institutional safeguards that traditional finance demands. Position sizes weren’t capped relative to capital. Leverage ratios weren’t monitored against market volatility thresholds. Risk controls existed only in theory.

Extreme Leverage as Strategy: Rather than leverage being a tool used cautiously, it became the entire operating principle. Every bull market signal triggered more borrowing, more positions, more risk.

Zero Transparency: Creditors had limited visibility into what 3AC was actually doing with borrowed funds. Banks and platforms lent based on reputation and the allure of crypto’s bull market, not on comprehensive due diligence of underlying positions.

The Lesson Su Zhu’s Fall Taught Crypto

Three Arrows Capital’s collapse wiped out billions in investor wealth and shattered confidence in the entire crypto lending ecosystem. It demonstrated that even in a market as young and volatile as digital assets, the oldest financial principle still applies: unchecked leverage always finds a way to destroy wealth.

Su Zhu’s story from 2012 to 2022 is a masterclass in how quickly fortunes can reverse when risk management is abandoned for the promise of outsized returns. The cautionary tale isn’t unique to crypto — but the speed and scale of the destruction certainly were. In a market where Bitcoin trades around $84K and institutions continue to build leverage positions, the Three Arrows Capital disaster remains the starkest reminder that leverage kills, regardless of how genius the trader looks in a bull market.