Rashomon Revisited: The Battle of the Lost Souls in the Encryption World

In the world of cryptocurrency, a thrilling legal battle is unfolding. The bankruptcy liquidation team of FTX submitted a heavyweight document to the court on June 23, fully denying the claim of up to $1.53 billion from Three Arrows Capital (3AC). This move has reignited a long-standing dispute, with two already collapsed crypto giants once again engaging in fierce confrontation in court. This latest legal conflict also unveils one of the darkest and most chaotic chapters in the history of cryptocurrency.

To understand this complex dispute, we first need to recognize three key figures and the stories behind them.

First is SBF, the founder of FTX. Before the collapse in 2022, he was seen as a savior of the encryption world and was sought after by the media and political circles. However, when his empire came crashing down, people realized that this "white knight" was just a fraud sentenced to 25 years in prison.

Secondly, there are the two founders of Three Arrows Capital, Su Zhu and Kyle Davies. They were known as the "gamblers" of the crypto circle, famous for their aggressive investment strategies. However, when the market reversed, their myth was shattered, the company went bankrupt, and the two fell into legal troubles.

Finally, there is John Ray III, an experienced bankruptcy liquidation expert. He has handled one of the largest fraud cases in American history—the bankruptcy liquidation of Enron. When he took over the FTX mess, even this well-versed "King of Liquidation" was shocked.

In 2022, the crisis triggered by the collapse of Terra/LUNA swept through the entire encryption industry. Three Arrows Capital was the first to be hit, sinking rapidly. A few months later, the seemingly indestructible FTX also suddenly imploded, exposing a massive scam.

Today, in the bankruptcy court of Delaware, these two already "buried" giants are arguing over a debt of $1.53 billion. Three Arrows claims that FTX illegally occupied their assets when they were on the brink of bankruptcy, while FTX counters that Three Arrows failed due to their own excessive risk-taking and should not seek compensation from other victims.

To unravel this mystery, we need to go back to that tumultuous summer of 2022 and dig deep into the concealed truth.

One contract, two interpretations

In court, both parties' lawyers provided completely different versions of the narrative.

FTX stated that they were merely enforcing the platform rules. When Three Arrows' account fell below the safety line due to market fluctuations, FTX repeatedly requested additional margin but received no response. Worse still, Three Arrows withdrew a large amount of funds from the account that was on the verge of collapse. In light of this situation, FTX claimed that they had to forcibly liquidate positions in accordance with the agreement to protect the interests of the platform and other customers.

The statement from Three Arrows Capital is completely different. Their liquidators claim that during the so-called "liquidation" process at FTX, assets worth up to $1.53 billion in the Three Arrows accounts were almost entirely wiped out in just two days. They believe this is not normal risk management, but a deliberate "robbery."

The Core of the Scam: Secret Operations in Crisis

To understand the essence of this dispute, we need to peel back the shiny exterior of FTX and see what actually happened internally in June 2022.

Key evidence comes from the testimony of SBF's ex-girlfriend and former CEO of Alameda Research, Caroline Ellison. She revealed in court that during the same week that FTX was liquidating Three Arrows' assets, Alameda also faced huge losses due to the collapse of Terra, facing a severe liquidity crisis.

In this case, SBF instructed Caroline to "borrow" billions of dollars from FTX customer funds to fill the gap at Alameda. This operation completely violates the fundamental principle of customer fund segregation and is essentially misappropriating customer assets.

Blockchain data also confirms this. Analysis shows that during the collapse of Three Arrows, Alameda transferred a large amount of FTT tokens to FTX, which are actually platform tokens issued by FTX itself and have extremely low liquidity. This is equivalent to exchanging almost worthless "tokens" for the real money of FTX customers.

When we piece together this information, the claim made by the founders of Three Arrows that they were "hunted" by FTX seems to be not entirely unfounded. For FTX/Alameda, which was already in distress at the time, liquidating a large trading counterpart like Three Arrows could have two purposes: first, to immediately obtain much-needed liquidity; second, to stabilize the situation by eliminating a huge source of risk in the market and covering up its own crisis.

Echoes of History

This dispute reminds people of the collapse of Lehman Brothers during the 2008 financial crisis. The core issue in both cases is the failure to strictly segregate client assets. Lehman Brothers was found to have serious violations in the management of client funds, while FTX mixed client assets with proprietary trading funds, which are both taboos in the financial industry.

The consequences of the two crises are quite similar: both led to prolonged and complex bankruptcy liquidation processes. The liquidation of Lehman Brothers involved trillions of dollars in claims, while the liquidation of FTX also faces numerous challenges such as opaque company structures and missing financial records.

Conclusion

The truth behind this $1.5 billion dispute is that it is not just a simple contract dispute, but a survival game. Three Arrows Capital did fail due to its own greed and recklessness, but FTX is by no means innocent. It is a fraudster that is already in crisis, attempting to cover up its own problems by sacrificing its competitors.

This case once again proves that when a system lacks effective regulation and transparency, even emerging industries that claim to innovate finance cannot escape the traps of human greed. The "war of the dead" between FTX and Three Arrows is just another replay of countless stories of greed in Wall Street's history, this time in the field of encryption.