Singapore-based cryptocurrency lender Hodlnaut has halted withdrawals, token swaps and deposits citing “recent market conditions”, becoming the latest in a string of crypto losses since May.
Crypto lender Hodlnaut suspends withdrawals
Founded in 2019 by Juntao Zhu and Simon Lee, Hodlnaut allows users to earn interest of as much as 7.25 percent on their cryptocurrency holdings by lending them to authorized institutions. As of Tuesday, the company said it had more than 10,000 users and $250 million in assets.
Although investors will continue to accrue interest on their accounts, they cannot withdraw assets until further notice. Hodlnaut said it must first stabilize its liquidity and work out a long-term solution, which “will not be a short process.”
Hodlnaut is the latest company to be caught up in the volatile crypto market, which has wiped more than $1 trillion in value this year. The two largest cryptocurrencies, bitcoin and ethereum, have fallen more than 60 percent since their peaks in November 2021.
In May, Terraform Labs’ stablecoin TerraUSD (UST) and sister token Luna collapsed, reducing their combined value from $60 billion to zero. It triggered a domino effect that caught other industry players, costing investors billions of dollars.
In July, more than a month after suspending withdrawals, New Jersey-based lender Celsius filed for Chapter 11 bankruptcy protection. At the time, it noted $167 million in cash, which would allow it to continue operating while restructuring.
Less than a year ago, Celsius was one of the largest players in the cryptocurrency market with $25 billion in assets under management. It was down to $11.8 billion in May, when the prices of major cryptocurrencies began to fall.
Three Arrows Capital, which had invested $200 million in the Luna tokens, also got involved. Crypto broker Voyager Digital issued a notice of default in June after the crypto hedge fund failed to make payments on a loan worth more than $665 million. A British Virgin Islands judge then ordered the company known as 3AC into liquidation, and the company filed for bankruptcy a few days later.
Liquidators said 3AC’s founders, Su Zhu and Kyle Davies, have been uncooperative and their whereabouts were unknown, according to a July 8 filing. In an interview with Bloomberg nearly two weeks later, they acknowledged that the collapse had caused widespread pain, but said death threats had forced them into hiding.
Creditors of the fund filed papers saying they are owed more than $2.8 billion in unsecured claims, according to the July 22 Bloomberg report, though the figure is expected to rise significantly.
Although Hodlnaut insisted it had no exposure to Anchor, a lending program that allowed Terra’s holders to deposit tokens, some reports suggested otherwise.
According to a July 14 report by Tech In Asia, which is considered the largest English-language technology media company focusing on Asia, Hodlnaut may have had as much as $187 million in exposure to UST at the time of the collapse.
Hodlnaut is known as a centralized finance (CeFi) platform, which sets its own interest rates on holdings of cryptocurrency. Although they typically offer higher rates than a conventional bank, crypto deposits are not eligible for such government-backed protection as FDIC insurance.
“Hodlnaut is a shadow bank, not an asset manager, exchange or trading platform,” according to financial writer and CoinDesk columnist Frances Coppola. Instead of peer-to-peer lending, users allow Hodlnaut to pool funds that can in turn be borrowed by institutional borrowers.
“Customers lend their money to the platform for it to do as it wants, and they are simply unsecured creditors of the platform,” Coppola said. “They are not entitled to their money back.”
