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The high-profile implosion of the crypto hedge fund Three Arrows Capital (3AC) last year left its investors in financial turmoil. However, there may be a glimmer of hope as the fund's architects propose a unique way to repay their debt.
Kyle Davies and Su Zhu, co-founders of the defunct 3AC, revealed an unconventional plan on July 3rd to help offset their creditors' losses. The proposed solution, dubbed the "shadow recovery process," was discussed in a candid Twitter Space discussion. It centers around potential earnings from their latest venture, Open Exchange (OPNX).
This alternative recovery method is not attached to the official bankruptcy proceedings currently run by the international consulting company, Teneo. Davies and Su propose to divert proceeds from OPNX to 3AC's creditors, but only those who were early backers and remain supportive of OPNX.
The duo is confident that their "shadow recovery process" has already made a number of creditors whole. Davies said that creditors' participation in the repayment plan is entirely optional. If any of them are not comfortable or do not agree with the approach, they are under no obligation to be part of it. This proposition, however, drew mixed responses from the crypto community.
The controversial plan comes after the co-founders found themselves under fire for launching OPNX just months after 3AC filed for Chapter 15 bankruptcy protection on July 1, 2022. Court documents reveal the liquidated fund owes $3 billion to over 20 firms.
Meanwhile, the location of Davies and Su remains a mystery, causing complications for the liquidators trying to serve them subpoenas. As per a recent New York Times report, the duo seems to be spending the majority of their time catching waves in Bali.
As of June 27, liquidators are looking to recoup $1.3 billion from the 3AC co-founders. This unique "shadow recovery process" presents a novel approach to addressing the fallout from a major crypto fund's collapse.
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