Yet another crypto lender announced that it has frozen withdrawals, leaving customers potentially facing steep losses.
While details are scant, the Singapore-based lending platform Hodlnaut may have had exposure to both the Terra/LUNA algorithmic stablecoin, which collapsed in May after a weeklong $48 billion run, and possibly Celsius, the first crypto lender forced into insolvency by that failure.
Hodlnaut also said Monday (Aug. 8) that it had withdrawn its application for a major payment institution license in Singapore. In March, it announced that had received “in-principle approval” from the Monetary Authority of Singapore (MAS) under the Payment Services Act. That license only covered its token swap business, not its lending/borrowing arm, where the losses are thought to have come from.
The exchange Zipmex entered bankruptcy in July. Lender Babel announced in June that it was freezing withdrawals. Another lender, BlockFi, escaped bankruptcy after receiving funding from FTX CEO Sam Bankman-Fried, which may see it acquired by the top U.S. exchange.
Most of the failed lenders had exposure to Three Arrows Capital, a crypto hedge fund that was able to borrow hundreds of millions of dollars with no collateral and reportedly little insight into how it was using them — the answer being some very risky decentralized finance (DeFi) projects.
What Hodlnaut’s withdrawal freeze means is that it’s not yet certain that the fallout from the Terra/LUNA failure is over. But it also means failures can’t be attributed solely to the collapse of the broader crypto market, which saw bitcoin prices crater in June. It’s currently near $24,000, which is far from good, but no longer dancing with the psychologically vital $20,000 mark.
“Hodlnaut is a relatively small service, so we do not expect this news to have a noticeable impact on the price of the major assets, especially since the markets show an arguably more bullish structure than they did when the crypto credit crunch started in June,” Mikkel Mørch, executive director at digital asset investment fund ARK36, said in an emailed statement.
But, he added, “It’s a bit baffling that Hodlnaut would cite ‘market conditions’ as the reason for its predicament, since these have been steadily improving.”
No Free Lunch
Hodlnaut, which offered up to 7.5% interest on deposits according to its website, said in a statement that its actions were “due to recent market conditions” — the same thing other crypto lenders including Voyager Digital, Vauld and Celsius said before eventually filing for bankruptcy protection.
Several reports said Hodlnaut was exposed to the collapse of the TerraUSD stablecoin to the tune of $187 million and may have been a creditor of Celsius.
It’s worth noting that Hodlnaut’s 7.5% yield was not excessive by crypto lending standards — Celsius offered 18% — but is still far above anything you can get in the non-crypto market.
In a recent interview with PYMNTS, economist David Evans, chairman of Global Economics Group, pointed to even-more excessive rates — Anchor, a DeFi platform closely associated with the TerraUSD stablecoin that led to Three Arrows’ downfall, offered as much as 20%.
That, he noted, was “five times, six times as much as you could get anywhere else. Somehow there’s a free lunch there. You know there are no free lunches. If you’re getting 20%, something funny is up.”
Stablecoins’ utility in enabling the DeFi platforms that offer unsustainably high returns is part of the reason he said far tough regulation of the dollar-pegged cryptocurrencies is needed.
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