Founders of Three Arrows Capital Plan Trading Platform Bankrupt for Troubled Crypto Debt

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The founders of a bankrupt crypto hedge fund company are looking to launch an exchange where creditors of insolvent digital asset companies, including their own, could buy and sell claims.

Su Zhu, co-founder of bankrupt crypto hedge fund manager Three Arrows Capital Ltd., said he and others were looking to raise $25 million in seed money for the new platform. A pitch deck aimed at potential investors, seen by The Wall Street Journal, labeled the company as GTX, a knockout punch on fallen crypto exchange FTX.

Mr. Zhu said that GTX is not the definitive name of the company. Other founders include Kyle Davies, who co-founded Three Arrows, and Mark Lamb and Sudhu Arumugam, co-founders of crypto exchange CoinFLEX. They should finalize the company name next week.

Cryptocurrency prices were mixed early Monday morning. (Photo Illustration by Chesnot/Getty Images) (Photo Illustration by Chesnot/Getty Images / Getty Images)

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A wave of cryptocurrency companies filed for bankruptcy last year after the value of various coins plummeted and financial strains spread across the industry.

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Three Arrows defaulted last year on a roughly $2.4 billion loan from crypto lender Genesis Global Capital. The lender’s parent company, Digital Currency Group Inc., filed a claim of about $1.2 billion against Three Arrows. Last summer, a court in the British Virgin Islands ordered the liquidation of the company of Messrs. Zhu and Davies after creditors including DCG sued her for failing to repay her debts.

Cryptocurrency exchanges are paying top dollar to run ads during the upcoming Sunday Super Bowl between the Los Angeles Rams and the Cincinnati Bengals. (Photo illustration by Chesnot/Getty Images) (Photo illustration by Chesnot/Getty Images / Getty Images)

Zhu said some creditors of Three Arrows would have the option of converting their debts into shares in the new debt trading company.

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Other crypto companies, including lenders Celsius Network LLC and BlockFi Inc. and exchange FTX, have also filed for bankruptcy. Investors fear that more companies will become insolvent. Genesis is considering filing for bankruptcy, the Wall Street Journal reported.

An illustrative photo taken in London on May 8, 2022 shows gold-plated souvenir cryptocurrencies. (JUSTIN TALLIS/AFP via Getty Images/Getty Images)

Bankruptcy proceedings are often lengthy, sometimes requiring claimants to wait years to get some, if any, of their money back. Creditors of once-dominant crypto exchange Mt. Gox are still waiting to recover their funds, nearly a decade later.

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In its pitch deck, GTX estimated that there is a $20 billion market for crypto claims, based on the notional value of those claims. GTX aims to gain an advantage over rival start-up Xclaim Inc. by offering lower fees.

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