Three Arrows Gives Crypto Another Try

High on the list of crypto’s most impressive accomplishments is the ability of crypto finance to convince people to lend money, at very high loan-to-value ratios, against collateral that is somewhere between “extremely risky” and “transparently worthless.” We have talked repeatedly about the time Sam Bankman-Fried said to me, on a podcast, that in crypto you can build a box and issue tokens from the box and “put [the] token in a borrow lending protocol and borrow dollars with it” and “never, you know, give the dollars back.” And we have talked about how Bankman-Fried’s FTX crypto exchange did more or less exactly that, borrowing billions of dollars of customer money against its stash of made-up tokens and not giving the money back.

And we have talked about Kyle Davies, one of the founders of crypto trading firm Three Arrows Capital, or 3AC, whose superpower was convincing people to lend him hundreds of millions of dollars to do crypto “arbitrage” trades that were just, like, buying speculative tokens of new crypto protocols, holding them for a while and hoping they’d go up. The innovations in 3AC’s business model were: