Much Wow
August 17, 2022 1:13 PM Subscribe
In 2012, while both were temporarily living in San Francisco, Zhu and Davies pooled their savings and borrowed money from their parents to scrape together about $1 million in seed funds for Three Arrows Capital.
As one does. I'm sure that lots of "middle class guys" could scrape together a million dollars from savings and their parents' investments to start a hedge fund. I mean, my father could easily lend me three or four hundred thous--oh, wait, no, it's family wealth in the background again.
Either Andover is a much worse school than I had assumed or else merely being good at math doesn't give you common sense or probity.
posted by Frowner at 1:33 PM on August 17, 2022 [67 favorites]
As one does. I'm sure that lots of "middle class guys" could scrape together a million dollars from savings and their parents' investments to start a hedge fund. I mean, my father could easily lend me three or four hundred thous--oh, wait, no, it's family wealth in the background again.
Either Andover is a much worse school than I had assumed or else merely being good at math doesn't give you common sense or probity.
posted by Frowner at 1:33 PM on August 17, 2022 [67 favorites]
Zhu and Davies are currently believed to be in hiding.
"What we don't know keeps the contracts alive and movin'
They don't gotta burn the drives they just remove 'em
While ones an zeros fill as quick as the cells
Rally 'round the family, pockets full of shells"
posted by clavdivs at 1:34 PM on August 17, 2022 [22 favorites]
"What we don't know keeps the contracts alive and movin'
They don't gotta burn the drives they just remove 'em
While ones an zeros fill as quick as the cells
Rally 'round the family, pockets full of shells"
posted by clavdivs at 1:34 PM on August 17, 2022 [22 favorites]
It's worth noting that any headlines about the millions (or trillions) anytime crypto is involved are wildly inflated as many of the high rollers bought in at absurdly low prices, and the 6,000,000% inflation is total "on paper."
But even if you divide a trillion by 60 thousand, it's still some serious money.
posted by CheeseDigestsAll at 1:41 PM on August 17, 2022 [15 favorites]
But even if you divide a trillion by 60 thousand, it's still some serious money.
posted by CheeseDigestsAll at 1:41 PM on August 17, 2022 [15 favorites]
Why are they being billed as “Andover graduates” and not “Columbia graduates”?
posted by Going To Maine at 1:47 PM on August 17, 2022 [7 favorites]
posted by Going To Maine at 1:47 PM on August 17, 2022 [7 favorites]
On preview, what CheeseDigestsAll said - the trillion dollar figure is great clickbait but also playing into the scam artists' story. Consider an alternate phrasing - "Hypothetical Trillions, thought by many experts to be fake, proven to be fake."
posted by mrgoldenbrown at 1:48 PM on August 17, 2022 [36 favorites]
posted by mrgoldenbrown at 1:48 PM on August 17, 2022 [36 favorites]
Grifters gonna grift*
* Applies to most crypto stories
posted by tommasz at 1:59 PM on August 17, 2022 [2 favorites]
posted by tommasz at 1:59 PM on August 17, 2022 [2 favorites]
For more 3 Arrows coverage, see Web3 is going great
posted by mrgoldenbrown at 2:00 PM on August 17, 2022 [8 favorites]
posted by mrgoldenbrown at 2:00 PM on August 17, 2022 [8 favorites]
David Gerard has a good blog about Crypto failures, I thought his recent post on all the different companies going bankrupt right now was informative. The crypto people are trying to blame 3AC for everything, but it's clear there were multiple companies about to go bad at the same time and 3AC was just the first and largest.
posted by JZig at 2:37 PM on August 17, 2022 [8 favorites]
posted by JZig at 2:37 PM on August 17, 2022 [8 favorites]
On preview, what CheeseDigestsAll said - the trillion dollar figure is great clickbait but also playing into the scam artists' story.
If you're wondering how this works, the answer is "wash trading". People buy and sell the various tokens involved from themselves at increasingly inflated prices, giving the false impression that the things being exchanged are of greater and greater value. The protagonist here never needs to pay anyone but themselves, so they never lose money as long as they can outpace transaction fees; the person who loses money is the one who finally buys the widget at the artificially inflated price, discovers it is valueless, and then is basically forced to engage in the same scam to recoup their losses.
According to this paper from about a year ago, approximately 70% of all trading being done on all the major crypto exchanges is wash trading.
I'll say that again: seventy percent. More than two thirds of this market is people deliberately engaged in something that would be illegal if they were doing it with real money.
I'm saying this because I care about you: you need to avoid this whole distributed-ponzi-scheme-pretending-to-be-a-market. It is a fraud being perpetrated on the ignorant and desperate. Do not get involved.
posted by mhoye at 2:41 PM on August 17, 2022 [94 favorites]
If you're wondering how this works, the answer is "wash trading". People buy and sell the various tokens involved from themselves at increasingly inflated prices, giving the false impression that the things being exchanged are of greater and greater value. The protagonist here never needs to pay anyone but themselves, so they never lose money as long as they can outpace transaction fees; the person who loses money is the one who finally buys the widget at the artificially inflated price, discovers it is valueless, and then is basically forced to engage in the same scam to recoup their losses.
According to this paper from about a year ago, approximately 70% of all trading being done on all the major crypto exchanges is wash trading.
I'll say that again: seventy percent. More than two thirds of this market is people deliberately engaged in something that would be illegal if they were doing it with real money.
I'm saying this because I care about you: you need to avoid this whole distributed-ponzi-scheme-pretending-to-be-a-market. It is a fraud being perpetrated on the ignorant and desperate. Do not get involved.
posted by mhoye at 2:41 PM on August 17, 2022 [94 favorites]
Man Who Lost Everything In Crypto Just Wishes Several Thousand More People Had Warned Him
posted by chavenet at 2:56 PM on August 17, 2022 [10 favorites]
posted by chavenet at 2:56 PM on August 17, 2022 [10 favorites]
r/buttcoin: MFW it's 2049, code is law, and my husband of 27 years dies, but our NFT marriage certificate was stolen so now legally his "wife" is a 19 year old bangladeshi man who's going to take my house, and a bunch of redditors tell me it's "an expensive lesson in keeping your seed phrase secure"
posted by sebastienbailard at 3:01 PM on August 17, 2022 [45 favorites]
posted by sebastienbailard at 3:01 PM on August 17, 2022 [45 favorites]
It's not clear how much money 3AC itself actually vaporized but the article notes
Probably illegal with magic beans too, particularly since the magic beans were being traded for real money. Details vary significantly by jurisdiction and the particular flavor of scam.
posted by Nelson at 3:02 PM on August 17, 2022 [5 favorites]
By mid-July, creditors had come forward with more than $2.8 billion in claims; the figure is expected to balloon from there.something that would be illegal if they were doing it with real money.
Probably illegal with magic beans too, particularly since the magic beans were being traded for real money. Details vary significantly by jurisdiction and the particular flavor of scam.
posted by Nelson at 3:02 PM on August 17, 2022 [5 favorites]
If they owe money to the mob, they may as well be good as dead. But regular banks and investors giving money unsecured — that's madness that affects real people. Long overdue for governments to step in and make crypto illegal.
posted by They sucked his brains out! at 3:08 PM on August 17, 2022 [6 favorites]
posted by They sucked his brains out! at 3:08 PM on August 17, 2022 [6 favorites]
It's always important to bear in mind that there is no money in crypto except that which people put into the system. The only way to cash out, to dump your crypto for cash, is to find a sucker who's willing to believe crypto is worth something and cheat them. There simply do not exist hundreds of billions of dollars' worth of suckers willing to buy crypto tokens, and whenever you hear people talking as if the total value of cash in crypto is Tokens times Current Token Value, you're listening to either a scammer or a sucker.
posted by Pope Guilty at 3:24 PM on August 17, 2022 [26 favorites]
posted by Pope Guilty at 3:24 PM on August 17, 2022 [26 favorites]
[Seinfeld saying "That's a shame" gif]
Hey! I own that NFT!
posted by ChurchHatesTucker at 3:27 PM on August 17, 2022 [23 favorites]
Hey! I own that NFT!
posted by ChurchHatesTucker at 3:27 PM on August 17, 2022 [23 favorites]
“Why are they being billed as ‘Andover graduates’ and not ‘Columbia graduates’?”
Because their prep school background tells us more about them than their university does. This surely has a bearing on their story, particularly because they weren't affluent or connected by Andover standards. They soaked up the sense of insular privilege but didn't have the contacts to set up something like a traditional hedge fund. They thought they were something they were not.
posted by Ivan Fyodorovich at 3:31 PM on August 17, 2022 [14 favorites]
Because their prep school background tells us more about them than their university does. This surely has a bearing on their story, particularly because they weren't affluent or connected by Andover standards. They soaked up the sense of insular privilege but didn't have the contacts to set up something like a traditional hedge fund. They thought they were something they were not.
posted by Ivan Fyodorovich at 3:31 PM on August 17, 2022 [14 favorites]
“So many people feel disappointed and some of them embarrassed,” says Alex Svanevik, the CEO of Nansen, a Singapore-based blockchain-analytics company. “And they shouldn’t because a lot of people fell for this, and a lot of people gave them money.”
No, they should feel embarrassed, because they bought into an obvious scam*.
* All crypto is a scam.
posted by fedward at 3:33 PM on August 17, 2022 [12 favorites]
No, they should feel embarrassed, because they bought into an obvious scam*.
* All crypto is a scam.
posted by fedward at 3:33 PM on August 17, 2022 [12 favorites]
I went to their school and I can tell you that I sure had not heard of these guys through the alumni network. Possibly that's because I discard the alumni news unread and hardly talk to anybody. That's how I handle my Andover-based class anxiety, instead of doing scams.
I do remember the type of guys who went into high finance, and they were huge assholes with a lot in common with these dudes. Big fans of coke. They seem to be doing fine these days, since they are playing with real money.
posted by Countess Elena at 3:53 PM on August 17, 2022 [15 favorites]
I do remember the type of guys who went into high finance, and they were huge assholes with a lot in common with these dudes. Big fans of coke. They seem to be doing fine these days, since they are playing with real money.
posted by Countess Elena at 3:53 PM on August 17, 2022 [15 favorites]
The SEC is coming for them. It will take a while, but all of this shit will wind up categorized as "unregistered securities" and all their asses will be ground into fine paste.
posted by seanmpuckett at 3:54 PM on August 17, 2022 [5 favorites]
posted by seanmpuckett at 3:54 PM on August 17, 2022 [5 favorites]
There’s frauds who lie to their victims, and then there’s frauds where the frauds are lying to themselves as well, and then there’s crypto finance, where an entire culture of self-delusion is built on a structure of panopticon-fraud and lies.
The elements here where being a celebrity on Twitter and making luridly bullish statements is what gives the game away, it’s a culture of carnival barkers bellowing at other loud chancers. To the moon!
posted by Fiasco da Gama at 3:57 PM on August 17, 2022 [13 favorites]
The elements here where being a celebrity on Twitter and making luridly bullish statements is what gives the game away, it’s a culture of carnival barkers bellowing at other loud chancers. To the moon!
posted by Fiasco da Gama at 3:57 PM on August 17, 2022 [13 favorites]
I liked that section of the article where they mentioned two employees working 80-100 hours a week managing risk left the company at the same time, one of the two cofounders (the "lassez-faire" one) took over that job, and suddenly Three Arrows wasn't managing the risk so much any more.
The cofounders seem to have had plenty of time to shop for yachts, post on Twitter, move to a place they couldn't be extradited, keep assets in their wives and mothers' names, borrow from the mob, and work out...
posted by subdee at 4:24 PM on August 17, 2022 [4 favorites]
The cofounders seem to have had plenty of time to shop for yachts, post on Twitter, move to a place they couldn't be extradited, keep assets in their wives and mothers' names, borrow from the mob, and work out...
posted by subdee at 4:24 PM on August 17, 2022 [4 favorites]
So, if NYM is correct these two are in Dubai, and they can't leave for fear of extradition.
How much non-crypto cash and (genuine, out-of-debt) assets do they actually have?
Because being short of the ready in Dubai is rough, is my understanding. Could be darn near poetic justice.
posted by humbug at 5:14 PM on August 17, 2022 [3 favorites]
How much non-crypto cash and (genuine, out-of-debt) assets do they actually have?
Because being short of the ready in Dubai is rough, is my understanding. Could be darn near poetic justice.
posted by humbug at 5:14 PM on August 17, 2022 [3 favorites]
It says they took out their own investments from the comingled investment fund first, about 5 million and 32 million and also sold (tried to sell?) their 30-something million Singaporean mansions... How much do you need to be covered in Dubai?
posted by subdee at 5:48 PM on August 17, 2022 [1 favorite]
posted by subdee at 5:48 PM on August 17, 2022 [1 favorite]
Hunert million, same as L.A.
posted by clavdivs at 5:59 PM on August 17, 2022 [21 favorites]
posted by clavdivs at 5:59 PM on August 17, 2022 [21 favorites]
Can you imagine if this level of effort had been used for something that actually mattered?
That's the thought that keeps running through my head, pretty much any time I start reading about even standard arbitrage - what actual concrete value is all this mental, physical, electrical energy actually providing?!? Add on a layer of bullshit (crypto currency) to another layer of bullshit (straight up bullshit lies) and I'm just... gobsmacked, I guess.
posted by worstname at 6:59 PM on August 17, 2022 [14 favorites]
That's the thought that keeps running through my head, pretty much any time I start reading about even standard arbitrage - what actual concrete value is all this mental, physical, electrical energy actually providing?!? Add on a layer of bullshit (crypto currency) to another layer of bullshit (straight up bullshit lies) and I'm just... gobsmacked, I guess.
posted by worstname at 6:59 PM on August 17, 2022 [14 favorites]
That’s a long article. I think I need a slice of pie to get through it.
posted by TedW at 7:37 PM on August 17, 2022 [6 favorites]
posted by TedW at 7:37 PM on August 17, 2022 [6 favorites]
yeah, what worstname said. They could have done something worthwhile and instead -
posted by From Bklyn at 1:11 AM on August 18, 2022 [1 favorite]
posted by From Bklyn at 1:11 AM on August 18, 2022 [1 favorite]
Having swum with the sharks earlier in my career, and made a good packet of money doing, yes, currency arbitrage, back in 2005 or so, I think it is funny as hell that these chumps got kicked out of currency trading. Because yes, the banks kick your asses out of the club if you are too toxic of a counterparty (ask me how I know). And it’s even funnier that they lit it up in cryptocurrencies without, apparently, even the faintest of internal risk controls. And that the people loaning them money didn’t have risk controls on that either.
I mean, any of these conventional investment groups should have looked at the crypto markets and thought to themselves: “there’s literally no way to tell what this customer is going to do with the cryptocurrency I am handing them, and literally no way for me to claw it back on a margin call.” Because the conclusion to draw there is “nope nope nopitey nopenope”, it doesn’t matter what kind of return they are promising. Under those conditions, it’s not “lending”. It’s “handing them money with no strings attached and asking them to give it back someday pretty please”.
posted by notoriety public at 4:58 AM on August 18, 2022 [4 favorites]
I mean, any of these conventional investment groups should have looked at the crypto markets and thought to themselves: “there’s literally no way to tell what this customer is going to do with the cryptocurrency I am handing them, and literally no way for me to claw it back on a margin call.” Because the conclusion to draw there is “nope nope nopitey nopenope”, it doesn’t matter what kind of return they are promising. Under those conditions, it’s not “lending”. It’s “handing them money with no strings attached and asking them to give it back someday pretty please”.
posted by notoriety public at 4:58 AM on August 18, 2022 [4 favorites]
They seemed frustrated by their inability to get Three Arrows to the next level, though. At a dinner around 2015, Davies lamented to another trader about how hard it was to raise money from investors. The trader wasn’t surprised — after all, Zhu and Davies had neither much of a pedigree nor a track record.As somebody who's been on the periphery of the financial world in which these two guys got their start, I find strange the way they went about their 'careers'. They both had stints in major investment banks, Credit Suisse and Deutsche Bank. A good track record at either of those places would have provided them with the pedigree and track record, as well as valuable contacts, for striking out on their own. This seems to indicate they left before they could actually learn anything.
The schools they went to (Andover, Columbia) and their subsequent workplaces were rife with networking opportunities. Ihey don't seem to have capitalized on any of those opportunities, but instead burned bridges, such as pissing off the bank FX traders, resulting in their being cut off from FX trades. It feels strangely like they were practicing some cargo cult version of running a hedge fund, without having the knowledge and connections to do a real job of it.
posted by needled at 8:18 AM on August 18, 2022 [5 favorites]
Can you imagine if this level of effort had been used for something that actually mattered?
That's the thought that keeps running through my head, pretty much any time I start reading about even standard arbitrage - what actual concrete value is all this mental, physical, electrical energy actually providing?!? Add on a layer of bullshit (crypto currency) to another layer of bullshit (straight up bullshit lies) and I'm just... gobsmacked, I guess.
Right. On a basic level, the most valued and compensated positions in our economic system are people who turn money into more money. They don't create anything, they don't solve problems, they don't provide a service to anyone (unless making rich people richer is a service).
It says something very ugly about our economic system. People ultimately make money in the stock market because companies are focused on constant and unsustainable growth in order to provide ever-increasing value to stockholders, and they can only do that by underpaying or laying off workers, overcharging consumers for their goods, and otherwise making things more difficult for everyone else.
I will join in the schadenfreude for these knobs, but I'm sad about what this story says about our society in general and where it's going.
posted by Ben Trismegistus at 8:28 AM on August 18, 2022 [22 favorites]
That's the thought that keeps running through my head, pretty much any time I start reading about even standard arbitrage - what actual concrete value is all this mental, physical, electrical energy actually providing?!? Add on a layer of bullshit (crypto currency) to another layer of bullshit (straight up bullshit lies) and I'm just... gobsmacked, I guess.
Right. On a basic level, the most valued and compensated positions in our economic system are people who turn money into more money. They don't create anything, they don't solve problems, they don't provide a service to anyone (unless making rich people richer is a service).
It says something very ugly about our economic system. People ultimately make money in the stock market because companies are focused on constant and unsustainable growth in order to provide ever-increasing value to stockholders, and they can only do that by underpaying or laying off workers, overcharging consumers for their goods, and otherwise making things more difficult for everyone else.
I will join in the schadenfreude for these knobs, but I'm sad about what this story says about our society in general and where it's going.
posted by Ben Trismegistus at 8:28 AM on August 18, 2022 [22 favorites]
^ yes!
and we end up with sensational scams, then these stories of sensational flops, and threads where a few of us take a modicum of satisfaction that at least a handful of people (might) experience repercussions due to their shitty behaviours
but we're all still stuck in this system, and it really sucks
posted by elkevelvet at 10:11 AM on August 18, 2022 [1 favorite]
and we end up with sensational scams, then these stories of sensational flops, and threads where a few of us take a modicum of satisfaction that at least a handful of people (might) experience repercussions due to their shitty behaviours
but we're all still stuck in this system, and it really sucks
posted by elkevelvet at 10:11 AM on August 18, 2022 [1 favorite]
People ultimately make money in the stock market because companies are focused on constant and unsustainable growth in order to provide ever-increasing value to stockholders, and they can only do that by underpaying or laying off workers, overcharging consumers for their goods
???
Investing basically means lending your money, and getting some kind of return on it. When you buy shares of a company, you're getting a small slice of its future earnings. Typically the business will pay out some of its earnings as a cash dividend and reinvest the rest to expand its business (for example, by adding more stores), causing its value to grow.
Of course, this assumes that there's a real business that is providing goods and services people want - that's where the earnings are coming from. In the case of crypto, it seems more like people writing promissory notes to each other.
posted by russilwvong at 3:46 PM on August 18, 2022 [1 favorite]
???
Investing basically means lending your money, and getting some kind of return on it. When you buy shares of a company, you're getting a small slice of its future earnings. Typically the business will pay out some of its earnings as a cash dividend and reinvest the rest to expand its business (for example, by adding more stores), causing its value to grow.
Of course, this assumes that there's a real business that is providing goods and services people want - that's where the earnings are coming from. In the case of crypto, it seems more like people writing promissory notes to each other.
posted by russilwvong at 3:46 PM on August 18, 2022 [1 favorite]
Investing basically means lending your money, and getting some kind of return on it..
Ideally yes, but for a long time now, it feels more like gambling, buying a stock and hoping its (perceived) value goes up so you can sell at a profit. Of course, "crypto bros" figured out that you don't need to generate real value, just the perception of it. See Sam Bankman-Fried's interview with Matt Levine for a surprisingly honest naked description of this.
posted by mon_petit_ordinateur at 5:01 PM on August 18, 2022 [5 favorites]
Ideally yes, but for a long time now, it feels more like gambling, buying a stock and hoping its (perceived) value goes up so you can sell at a profit. Of course, "crypto bros" figured out that you don't need to generate real value, just the perception of it. See Sam Bankman-Fried's interview with Matt Levine for a surprisingly honest naked description of this.
posted by mon_petit_ordinateur at 5:01 PM on August 18, 2022 [5 favorites]
This 3 Arrows Capital Risk Management Department Hat is my favorite subtle piece of merch that has come out of this whole boondoggle.
https://cerealboxdao.myshopify.com/products/3ac-risk-management-dept-hat
posted by MengerSponge at 1:23 PM on August 19, 2022 [5 favorites]
https://cerealboxdao.myshopify.com/products/3ac-risk-management-dept-hat
posted by MengerSponge at 1:23 PM on August 19, 2022 [5 favorites]
Stories like this one make me cringe even harder every time I see one of the public.com ads running on cable. Pretty hipsters and POC touting how easy and empowering it is to start investing using the app. The ads make it a point to feature investing in crypto as a prime feature. I’m just glad I don’t keep bricks in the house, or I’d be replacing my tv every week.
posted by Thorzdad at 7:27 AM on August 21, 2022
posted by Thorzdad at 7:27 AM on August 21, 2022
« Older Alaska's ranked choice voting gets its first major... | Thwack! Newer »
This thread has been archived and is closed to new comments
posted by DirtyOldTown at 1:32 PM on August 17, 2022 [6 favorites]