This case explores the downfall of crypto hedge fund Three Arrows Capital (3AC), illustrating the critical role of operational due diligence (ODD). Established in 2012 by Su Zhu and Kyle Davies, 3AC's swift shift from forex to cryptocurrencies led to rapid success, marked by opulence and influence. However, in 2022, the fund collapsed due to mishandling, governance failures, and compliance missteps. Students assume the role of Vera-Maria, head of ODD at a fund of funds (FoF), tasked with investigating the 3AC collapse. The FoF, contemplating investments in crypto hedge funds, is wary of digital asset risks post-3AC's collapse. Vera-Maria aims to extract lessons and craft an ODD framework to mitigate risks in future digital asset investments. The case delves into the 3AC collapse's causes, offering students insights into institutional best practices. It equips them to navigate the digital asset space, and identify and mitigate counterparty risks, fostering a comprehensive understanding of ODD in the context of crypto hedge funds

This case study examines the pivotal role of centralized exchanges in today's digital asset ecosystem and emphasizes the importance of thorough due diligence for institutional investors when assessing digital asset companies. It underscores the need to recognize potential warning signs, such as inadequate regulatory oversight, inexperienced management, or intricate corporate structures. Furthermore, it delves into effective practices for Sovereign Wealth Funds (SWFs) and other institutional investors venturing into the digital asset landscape to adeptly manage risks. In this case, students assume the role of Raffi, an analyst at a prominent Middle Eastern SWF. The SWF contemplates digital asset investments as part of its portfolio diversification strategy but is wary of associated risks, especially in the aftermath of the FTX collapse. Consequently, they assign Raffi the task of investigating the FTX collapse, extracting essential lessons, and formulating a robust due diligence framework to mitigate risks in future digital asset investments. This case aims to provide students with a comprehensive understanding of the factors contributing to the FTX collapse and acquaint them with best practices for institutional investors navigating the digital asset space, focusing on the identification and mitigation of counterparty risks.