The Giant Eyewash of the Encryption World: The "Soul Battle" of FTX and Three Arrows Capital

In the cryptocurrency realm, a sensational legal battle is unfolding. The FTX bankruptcy liquidation team submitted a significant document to the court, rejecting the $1.53 billion claim from Three Arrows Capital. This move escalated the "battle of the souls" that has been ongoing for years, as two already collapsed crypto empires fiercely clash in court once again. This latest legal conflict unveils one of the darkest and most chaotic chapters in cryptocurrency history.

To understand this complex dispute, we first need to recognize three key figures.

First is Sam Bankman-Fried (SBF), the founder of the FTX empire. Before the collapse in 2022, he was a myth in the world of encryption, hailed as the "white knight". The media compared him to financial giants, and politicians regarded him as a guest of honor. He presented himself with messy hair and casual attire, claiming to change the world with encryption. However, when the empire came crashing down, people realized that this "knight" was nothing more than an eyewash, ultimately sentenced to 25 years in prison.

Secondly, there are the founders of Three Arrows Capital, Su Zhu and Kyle Davies. They are the "gamblers" of the crypto circle, known for their aggressive investment strategies and huge leverage. Their "supercycle theory" was once regarded as a benchmark, but after the market reversal, their myth collapsed, the company went bankrupt, and the two began a global escape.

The third is John Ray III, an experienced bankruptcy liquidation expert. He has handled one of the largest fraud cases in American history. When he took over the mess of FTX, even this "king of liquidation" was shocked. He stated that in his decades-long career, he had never seen such chaotic company management and such unreliable financial information.

In 2022, a crisis triggered by the collapse of algorithmic stablecoins swept through the encryption world. Three Arrows Capital was the first to be hit, quickly going bankrupt. A few months later, the seemingly unassailable FTX suddenly collapsed, exposing a huge eyewash.

Now, in a Delaware court, these two defunct giants are embroiled in a dispute over a $1.53 billion debt. Three Arrows claims that FTX engaged in an illegal asset grab in the last moments before their collapse. FTX, on the other hand, counters that Three Arrows brought this upon themselves and should not seek compensation from other victims.

Is this an unscrupulous extortion or a delayed justice? To unravel this mystery, we must return to that chaotic summer of 2022 and dig out the truths that have been deliberately concealed.

In court, both parties held their ground, recounting entirely different versions of the story.

FTX claims to be a diligent platform manager. They stated that Three Arrows Capital is a troublesome major client that defaulted during market turmoil. FTX repeatedly requested Three Arrows to add margin, but the latter ignored the requests and even withdrew a large amount of funds from risky accounts. FTX asserts that its actions are fully compliant with the agreement and are intended to protect the interests of the platform and other clients.

The statement from Three Arrows Capital is completely different. When their liquidators took over the company, they found that almost all important records had disappeared. After a difficult investigation, they discovered that within just two days of FTX claiming to liquidate, assets worth $1.53 billion in the Three Arrows account were almost completely emptied. This discovery led them to significantly increase their claim amount from the initial $120 million.

To understand the core of this dispute, we must uncover SBF's true nature and see what exactly happened inside his empire in June 2022 when he appeared as a savior.

Key evidence comes from SBF's ex-girlfriend, Caroline Ellison, the head of Alameda Research. In SBF's criminal trial, she revealed a stunning secret: during the same week that FTX liquidated Three Arrows Capital, Alameda also suffered huge losses due to the market crash, facing a funding gap of billions of dollars. Under SBF's instructions, she opened a "secret backdoor" to "borrow" huge amounts from FTX customers' funds to repay Alameda's debts.

This testimony reveals the dark core of the entire event. It turns out that while FTX presented itself as a strict enforcer to the outside world, its affiliated company Alameda was secretly and illegally misappropriating FTX customers' funds.

Blockchain data provides evidence for this claim. Analysis shows that during the collapse of Three Arrows Capital, Alameda transferred a large number of FTT tokens to FTX, which are actually assets issued by FTX itself and lack real liquidity.

Looking back at SBF's public statements at that time, it was simply a brilliant performance. While secretly misappropriating client funds, he publicly claimed he was willing to make sacrifices to stabilize the market.

Putting these pieces of information together, the claim made by the founder of Three Arrows Capital that he was "hunted by FTX" no longer seems so absurd. For FTX/Alameda, which was already in trouble at the time, there were two obvious motivations for liquidating a large, highly leveraged counterparty like Three Arrows: first, to immediately obtain much-needed liquidity to fill their own hole; and second, to stabilize the situation by eliminating a significant source of risk in the market, thereby masking their own crisis.

This is not about enforcing rules, but rather a drowning person desperately pulling at those around them, trying to gain a little more chance of survival.

Putting this dispute in a broader historical context, we will find that it is actually a repeat of the 2008 financial crisis, a reenactment of the Lehman Brothers collapse.

The root cause of both crises is the same: the failure to effectively isolate customer assets. This is the most fundamental principle in the financial sector. However, after the bankruptcy of Lehman Brothers, it was discovered that there was serious negligence in the isolation of customer funds. The entire fraud system of FTX was built on the mixing of customer assets with proprietary trading funds. This practice turned customers from asset owners into unsecured creditors of the platform.

The consequences of the two crises are similar: a prolonged and chaotic liquidation process. The bankruptcy of Lehman Brothers involved huge debts and global subsidiaries, with the liquidation process lasting for years. Today, the liquidators of FTX are facing the same tricky situation. The opaque corporate structure, missing financial records, and hard-to-value digital assets make the liquidation work exceptionally difficult.

History always repeats itself in similar ways. The story of FTX and Three Arrows Capital is not just an exception in the field of cryptocurrency, but a classic case of financial arrogance, regulatory failure, and human greed, merely dressed in the new guise of "Web3."

So, what is the truth behind the $1.5 billion "Hell Ledger" dispute?

The fact is, this is not a simple default dispute at all, but a naked survival game. Three Arrows Capital is undoubtedly a greedy, reckless "super gambler" that ultimately brought ruin upon itself; its downfall is self-inflicted. However, FTX is by no means an innocent platform that operates by the rules. It is a fraudster that has already fallen into crisis itself, but uses the "sacrifice" of another opponent to cover up its own problems.

This is a dying gambler encountering a disguised eyewash. In that rule-less world, governed only by the law of the jungle, they staged the final bloody showdown.

The final ruling of the Delaware court may set some new standards for future cryptocurrency bankruptcy cases. But for this once ambitious industry that aimed to disrupt traditional finance, history has already rendered its verdict: when a system lacks effective regulation and transparency, and when the slogan of "decentralization" ultimately devolves into blind worship of a few "big shots," there are no heroes here, only different forms of predators.

Human greed and fear have never changed. The "battle of the undead" between FTX and Three Arrows Capital is merely a replay of countless tales of greed on Wall Street throughout the century, now playing out in the field of encryption.