Su Zhu and Kyle Davies, founders of the defunct crypto hedge fund Three Arrows Capital, are trying to raise $25 million to start a new crypto exchange that would let depositors transfer claims related to the FTX collapse for an immediate credit in a token to be called USDG.
Zhu and Davies are partnering with Mark Lamb and Sudhu Arumugam, the founders of crypto exchange CoinFlex, on an effort that aims to go to market “asap,” potentially in February, according to pitch decks obtained by The Block. CoinFlex is in the process of restructuring.
One of the pitch decks called the new exchange GTX — a spin on FTX — “because G comes after F,” the founders said, according to The Block.
CoinFlex later said in a blog post Monday that it would not be using that name, which “currently serves as a placeholder.”
The GTX name saw considerable backlash on Twitter. Nic Carter, a founding partner at Castle Island Ventures, equated the latest venture with “arsonists returning to the scene of the crime, hawking buckets of water to their victims.”
The pitch decks estimate the claims trading market is worth around $20 billion.
"Building a marketplace for trading claims (in addition to crypto and potentially other assets) is an evolution of CoinFlex's commitment to building open and transparent financial markets," the company said in its post. "New funds raised will be used for operational growth, which we strongly believe will increase value for CoinFlex creditors."
The new exchange seeks to benefit from the collapse of FTX, Voyager Digital and Celsius, all of which filed for bankruptcy in 2022.
A legal team would be responsible for overseeing the onboarding of claims for recent crypto bankruptcies such as Celsius and Voyager, The Block reported.
“Please note that given the nature of ongoing discussions with various parties, we have not been able to share an update about the proposed plans, but aim to do so once a possible round or partnership materializes,” CoinFlex wrote.
Three Arrows Capital is in the middle of Chapter 15 bankruptcy proceedings in New York. Prior to the collapse of the Terra ecosystem in May 2022, the Singapore firm had been one of the largest crypto hedge funds. Terra’s collapse left 3AC with significant losses, and the hedge fund’s losses turned into losses elsewhere: Voyager Digital attributed its bankruptcy to its exposure to 3AC, which defaulted on a loan worth more than $650 million, and crypto trading firm Genesis faced “hundreds of millions” in losses due to its exposure to 3AC, according to CoinDesk.
Genesis, which was also affected by the FTX contagion, laid off 30% of its workforce last week.
A bankruptcy court subpoenaed 3AC founders Zhu and Davies in December for any information, “including books, documents, records, and papers" relating to Three Arrows Capital's property or finances.
The duo kept a low profile following the collapse of 3AC, including five weeks in hiding due to death threats, according to Bloomberg. They’ve since resurfaced on social media. Both claim on Twitter to be in Dubai.
FTX, which collapsed in dramatic fashion in November after alleged fraud at the hands of then-CEO Sam Bankman-Fried and others, has left 1 million creditors and millions of customers without access to several billion dollars.