In the crypto world, Venture Capitals (VCs) always have a huge effect on market sentiment. They often put their investments first then use the surrounding media network to orchestrate the market in macro.
VCs are trying to pave the way for projects needing support to build up their ideas. Besides bridging crypto projects with abundant capital, those VCs stir the way the crypto market should go with their narratives by putting out the strong theses.
Three Arrows Capital has been making a huge bet on the potential of cryptocurrency for years. And in this article, we will walk you through this venture capital.
- Three Arrows Capital Overview.
- The portfolio analysis.
- The performance of Three Arrows Capital and.
- The investment thesis.
Let’s break down!
What is Three Arrows Capital (3AC)?
Three Arrows Capital (3AC) is a Singapore-based hedge fund that invests in crypto projects with high-risk returns. Founded in 2012, 3AC is now one of the most influential venture capitals that can lead the narratives of the market.
Besides investing in potential crypto projects, 3AC also diversifies the portfolio by buying crypto shares (Bitcoin from Grayscale). In January 2021, 3AC revealed a more than $1B position in Grayscale’s Bitcoin Trust in a report sent to the SEC. The fund previously reported holding 6.26% of GBTC shares worth $192M in June 2020. 3AC has well-built capital and can manage the flow to reduce the risk of failed investments.
With well-managed and sufficient capital, 3AC, led by 2 co-founders in their 30s, has had successful investments in 2021. In particular, 2 ground-breaking investments were blockchain platforms Solana (SOL) and Avalanche (AVAX).
Three Arrows Capital Members
Su Zhu is the core co-founder of Three Arrows Capital (3AC). He and Kyle Davies started their first fund in their apartment in 2012. As time goes on, both have built up 3AC to be one of the most influential crypto hedge funds globally that manage multi-billion dollar assets.
Before 3AC, Su Zhu worked as a trader at some trading companies such as Flow Traders and Deutschbank for a couple of years. It’s recommended to follow Su Zhu’s social media since he often tweets his thoughts on crypto that might contain valuable insights.
Kyle Davies is the co-founder of 3AC. He and Su Zhu have been close friends since high school. Like Su Zhu, he also has trading experience at big enterprises like Credit Suisse. Both co-founders are in their 30s.
Three Arrows Capital (3AC) Portfolio
Having been operating since 2012, but only from 2018, two co-founders entirely concentrated in crypto assets. At first, they built up their portfolio gradually with the Ethereum ecosystem. Then 3AC shifted to other new-generation blockchain platforms due to Ethereum’s drawbacks.
Therefore, 3AC’s portfolio includes Ethereum-based projects and other blockchain platforms projects.
As shown in the portfolio infographic above, Three Arrows Capital has placed over 50 investments in a wide variety of verticals. They can be sorted into the following categories:
- Equity: BlockFi, Deribit, Fireblocks, StarkWare, etc.
- Base Layer: Avalanche, Bitcoin, Ethereum, Mina, Solana, etc.
- Fund: DeFinance Capital, Multicoin Capital, Coincident Capital, etc.
- DEX: Balancer, Sushiswap, Trader Joe, Orca, DODO, etc.
- Lending: mStable, AAVE, Ardana, Jet Protocol, etc.
- Game: Axie Infinity, etc.
- Synthetic/Derivatives: BonFida, dYdX, dtrade, Perpetual Protocol, etc.
- Asset Management: dHEDGE, GRO, Tranches, LIDO, etc.
- Bitcoin: As mentioned above, in January 2021, 3AC owned over $1.2B shares of Grayscale’s Bitcoin Trust. Both co-founders have a trading background, but they now prefer long-term holding investments instead of hopping in and out of trades.
- Ethereum: In 2018, 3AC entirely concentrated on investing in crypto assets, mainly, Ethereum and the Ethereum ecosystem. In November 2021, Su Zhu expressed his thoughts that directly denounced Ethereum. However, in December 2021, it’s reported that 3AC has received around 156k ETH ($660M at the time of receiving). This means the fund still believes in the future of Ethereum.
- Mina: 0(1) Labs raised $10.9M for a lightweight blockchain Mina (formerly Coda Protocol). The funding round was led by Three Arrows Capital and Hong Kong-based Bixin Ventures in October 2020. In April 2021, Mina launched a token sale on Coinlist to raise over $18.7M.
- DogeCoin: 3AC co-founder Su Zhu shared his bullish thoughts on Dogecoin, which was added to their investment portfolio on the 3AC website. He believes Dogecoin contains no risk of regulatory issues.
- Avalanche: In September 2021, Three Arrows Capital and Polychain led a $230M investment in Avalanche through a private token sale. The round included Dragonfly, CMS Holdings, Lvna Capital, R/Crypto Fund, and other investors.
- StarkWare: In March 2021, StarkWare raised $75M in a Series B funding round led by Paradigm and other VCs, including Three Arrows Capitals. StarkWare is scaling up the Ethereum ecosystem as a layer-2 solution since they have partnered with multiple big projects such as dYdX and Immutable.
⇒ In the bullish growth of 2021, all investment deals of 3AC have skyrocketed, which leveled up the total value of the portfolio hundreds of times.
- Balancer raised a combination of $5M from Three Arrows Capital and DeFiance Capital in February 2021. The project and the VCs are trying to shift DeFi to Finance for a larger opportunity than Balancer itself in the past.
- Trader Joe, an Avalanche-based AMM DEX, raised $5M from Three Arrows Capital with other investors in a token sale. As mentioned, 3AC gives a particular belief in Avalanche, so that they helped Trader Joe get on the top of DeFi protocol built on Avalanche. According to the founder of Trader Joe, the edge is to give users the best experience and a wide selection of tokens.
- DODO, a Chinese DeFi project, raised $5M from top venture capitals, including Three Arrows Capital, Pantera Capital, Binance Labs, and other investors. The project developed a new market-making algorithm, “Proactive Market Making” (PMM), which fuses the operational functions of AMM and order book to facilitate lower slippage and cheaper gas fees.
- Orca has raised $18M from Three Arrows Capital, Polychain Capital, and other investors in a Series A round in September 2021. They are trying to build an AMM decentralized exchange for this recently emerging blockchain platform. Orca has reached a milestone as the ATH TVL is over $1.4B.
⇒ Like other top VCs, Three Arrows Capital can’t ignore this DEX cake as they have made multiple investment deals across the crypto space. They believe in Balancer’s long run, getting success from DODO and Avalanche-based Trader Joe. Orca is another remarkable deal of 3AC as the platform now has a firm position in Solana and continues growing.
- Aave has raised $3M in an investment round led by Framework Ventures and Three Arrows Capital in July 2020. This helped Aave continue to grow in terms of liquidity and users. Aave is now the leading lending platform based on Ethereum in the DeFi world with an $8B ATH market cap.
- Ardana is a new investment of 3AC as the platform is being built on Cardano. 3AC and Cardano’s cFund and Ascensive Assets joined a $10M investment in Ardana. This investment belongs to one of the earliest deals from institutional investors who will believe in Cardano as the next emerging ecosystem.
- Jet Protocol raised $6.8M in a follow-on round led by Paradigm, Solana Ventures, 3AC, and other investors. The investment deal is to accelerate the DeFi product roadmap of Jet Protocol. The investment helps a leg for the development of Jet Protocol in the long term.
⇒ Aave – Ethereum, Ardana – Cardano, Jet Protocol – Solana. We can see 3AC orchestrated the lending harmony across multiple ecosystems. Whether Ardana and Jet Protocol will be the next Aave?
- BonFida, a Solana-based decentralized exchange for perpetual with up to x15 leverage, has raised $4.5M in a seed round led by CMS Holdings with 3AC and other investors in December 2020. The platform is built on top of the Serum protocol and now leads the derivatives market on Solana.
- Perpetual Protocol has raised $1.8M in a strategic funding round led by Three Arrows Capital in 2020. The platform uses the vAMM design to build a decentralized exchange for derivatives. Some might say Perpetual Protocol is the combination of Uniswap and BitMex.
- dYdX raised $10M in a Series B round led by 3AC and DeFiance Capital with investors in January 2021. The trading platform previously raised $10M in a Series A round led by a16z and Polychain capital. With both staggering investment deals from top VCs, dYdX is now leading the derivatives market in terms of market cap and revenue.
⇒ It might be a coincidence that only about 6 months after the investment deal from 3AC, dYdX took up the most considerable portion of the crypto derivatives market. The derivatives market has released DYDX tokens and is always on top crypto projects with the highest revenue.
3AC continues the winning sequence with a deal with a Solana-based derivatives market, BonFida. Projects which 3AC invests in are supposed to have huge upside potentials.
- Tranchess has raised $1.5M in a Seed round led by Three Arrows Capital and Spartan Capital. They aimed to spend the money to complete the DAO and step forward in the roadmap to acquire more users to this asset management platform.
- LIDO was invested in around 5k ETH by Three Arrows Capital, DeFiance Capital, and other investors (angels included) via a 3% distribution proposal in Apr 2021. The platform is built to manage staked liquidity in 3 major blockchain platforms (Ethereum, Solana, Terra).
- dHedge has been supported with a $1.8M investment by the biggest names in the crypto space, such as DACM, Three Arrows Capital,… since 2020.
⇒ Three Arrows Capital has been one of the most active venture capital recently as they invested in multiple asset management projects. As one lego of DeFi, asset management is considered to acquire a large number of crypto users.
- Axie Infinity is now leading the gaming market in the crypto world. 3AC invested in the game in the early days. The two co-founders of 3AC took notice of NFT/Gaming projects in the seed of the trend. Axie Infinity was a successful investment deal of 3AC.
- Avocado DAO has concluded an $18M investment deal led by HASHED, Animoca Brands, 3AC, and other investors. The platform is building a gaming guild that operates like a DAO to realize the future of P2E games.
- Nyan Hero concluded $2.5M in a seed funding round led by 3AC, DeFiance, and other investors. This game will create an ecosystem where players can play-to-earn with endless entertainment.
- Neon Labs has raised $40M in a private token sale led by Jump Capital, 3AC, and other big VCs. The team is building an infrastructure that allows the Proof-Of-Stake blockchain Solana to be EVM compatible.
- Gitcoin has 3AC as one of the funders at Gitcoin Grant round 7. A total of $274k in contributions and $450k in matched funds were distributed to 857 projects.
⇒ In the DeFi category, 3AC also pays attention to NFT/Gaming projects (Nyan Heros, Axie Infinity) and DAO infrastructure like AvocadoDAO. In those investments, 3AC was one of the funding round leaders. This shows the indispensable and solid position of 3AC in the crypto-verse for the time being.
In which ecosystem Three Arrows Capital (3AC) invested?
Despite investments in many blockchain platforms, Three Arrows Capital is now lifting the force to support Avalanche. $260M from 3AC, Polychain, and other VCs are for the development of Avalanche and the ecosystem. With these surrounding aura of the best VCs, Avalanche has had staggering growth in the second half of 2021.
Avalanche is a special ecosystem since it’s favored by the 3AC co-founder Su Zhu. On Twitter, he uses the red triangle implying the full support for Avalanche from this multi-billion dollar venture capital. Despite the late investment in Avalanche, 3AC has contributed a lot in narratives on their social network. Su Zhu often expresses thoughts on Avalanche on his Twitter and why he has exceptional support for the growth of this blockchain platform.
In November 2021, Blizzard announced a seed investment of $200M, including Three Arrows Capital and other biggest VCs to support early-stage crypto projects across the Avalanche ecosystem. DeFi and NFTs/Gaming are the main focus of the fund.
We can conclude that Three Arrows Capital has been actively leveraging the potential of Avalanche via funds and narratives. As a billionaire, Su Zhu settles down investments to attract numerous investors and cash following this young crypto co-founder.
Su Zhu on Ethereum
He was starting with this Tweet posted in November 2021. He pointed out that Ethereum faces many problems, such as above-average gas fees and low-speed transactions. Furthermore, he retweets lots of related posts days later.
An Ethereum wallet related to 3AC transferred $77M worth of ETH to FTX. In addition to this, 3AC announced to heavily invest in Avalanche instead of Ethereum-based projects. This indicates the shifting taste of 3AC has changed. However, many thought this fuss around Etheruem was an intentional play.
Should we follow Three Arrows Capital’s portfolio?
Three Arrows Capital’s all-in bet on crypto started in 2018. As the bullish crypto fever in 2021, Three Arrows Capital has concluded an excellent portfolio (current prices are compared to prices at the beginning of 2021) as follows:
- AXS (Axie Infinity): 30,000%.
- SOL (Solana): 15,000%.
- PERP (Perpetual Protocol): 2,000%.
- DOT (Polkadot): 1,100%.
Almost all crypto investment deals of 3AC have released tokens with good performances. However, for 3AC to cash out the profit, they will have to wait for the vesting periods. Therefore, tokenomics is a critical criterion to consider investing in crypto.
3AC’s Investment Thesis
Three Arrows Capital’s investment thesis is often related to the present trend in crypto. Besides investing in crypto projects, they also invest in crypto assets (Bitcoin shares from GrayScale) to reduce the risk of losing any investment.
They also have a good relationship with other VCs, including DeFiance, DACM, Coincident Capital, Multicoin Capital, etc. Therefore, those VCs have formed a direct relationship in many investment deals, creating a solid network effect across the crypto space.
Most 2021 investments of 3AC are in the DeFi space (dYdX, Trader Joe, Orca, LIDO, Tranches, etc.). Three Arrows Capital selectively puts crypto projects through its filters to choose only a few investments with high upside potentials. Therefore, 3AC (including Su Zhu) is worth following their ideas to find suitable investments.
3AC in 2022
Su Zhu has recently shared his prediction about what 2022 (the future) will be look like.
Three Arrows Capital will possibly aim at mass adoption (as in the post of the 3AC CEO) for crypto. Let’s take a look at what projects are in the bag of 3AC; we can sense that 3AC will hold the bag for a longer period of time. Some in the bag might have the potential to embrace mass adoption.
Three Arrows Capital is thoroughly broken down in this article, and we can conclude some quick takes for readers’ convenience.
- Three Arrows Capital has two experienced co-founders with technical and fundamental analytical skills. Especially, they have been friends since high school.
- It’s fair to say that 3AC has a successful portfolio since all investment deals yield good outcomes.
- 3AC is investing crypto assets and funding crypto projects as they are now owing multi-billion dollar crypto funds and assets. Therefore, they have to manage the risk of their investments.
- As one of the leading venture capitals in the crypto space, 3AC is a useful source to track market sentiment. As a result, we can glean some insights from 3AC as well as Su Zhu.
And that is all you need to know about venture capital Three Arrows Capital. I hope you’ve gained the overview, and our insights will be useful to you. There will be more articles for other VCs. Stay tuned!
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