Celsius, Genesis, and 3AC (the 2022 Contagion)
The interconnected 2022 collapse of crypto lenders and a hedge fund - Three Arrows Capital, Celsius, and Genesis - where one borrower's default cascaded through firms that had quietly lent out their customers' deposits.
The 2022 contagion shows what was really happening to deposits that customers thought were just sitting there. The money was getting lent out, used as collateral, and lent again.
Three Arrows Capital (3AC) was a crypto hedge fund run by Su Zhu and Kyle Davies. It made enormous leveraged bets, including a large position in Terra/LUNA, which collapsed to nearly zero in May 2022. It funded those bets by borrowing from almost every lender in the industry. When the bets failed, 3AC defaulted and was ordered into liquidation in late June 2022, with creditors claiming more than $3 billion.
The firms that had lent 3AC their customers' money went down one after another. Celsius, a lender advertising high yields on deposited crypto, froze every withdrawal on 12 June 2022 and filed for bankruptcy owing roughly $4.7 billion to more than 600,000 users. Genesis, the lending desk owned by Digital Currency Group, had lent 3AC about $2.36 billion. When that money was gone, its parent covered the roughly $1.1 billion hole on paper with a promissory note not due until the 2030s, while about 340,000 Gemini Earn depositors were told the operation was solvent. Genesis filed for bankruptcy in January 2023. Voyager and BlockFi went down the same way.
Celsius founder Alex Mashinsky pleaded guilty to fraud and was sentenced to 12 years in 2025. None of this needs cartoon villains. It is just what "earn interest on your crypto" actually means: your crypto gets lent into someone else's leverage, and you quietly become a creditor of a trade you never agreed to.
See Mt. Gox to FTX: The Custody Graveyard for how the 2022 contagion fits the longer story.
Key takeaways
- Three Arrows Capital (3AC), a hedge fund, blew up on leveraged bets after the Terra/LUNA crash and defaulted on loans across the industry in mid-2022
- Its default cascaded into lenders that had funded it with customer money: Celsius (froze June 2022, about $4.7B owed to users), Genesis, Voyager, and BlockFi
- Genesis had lent 3AC about $2.36B; its parent DCG papered over the roughly $1.1B unsecured hole with a promissory note not due until the 2030s. Celsius founder Alex Mashinsky was sentenced to 12 years in 2025