Just when you thought it was vaguely safe to start fantasising about “portfolio” recovery, the crypto contagion rears its ugly head. This time, it’s Singaporean lending outfit Hodlnaut’s turn to freeze hapless users’ assets.
But fear not too much. If you’ve never heard of them that’s because they’re a fairly small player in the centralised finance sector of crypto, according to our two quoted experts further below.
So what’s the deal? Is this another Celsius-type over-leveraged, over-exposed situation? Full details are scant, but the firm appears to be just another in a long line of crypto CeFi companies taking a bath in boiling water since Terra LUNA’s horrendous collapse back in May.
Since that time, the industry was rocked with a contagion of liquidity problems affecting the likes of top lenders/brokers Celsius, Voyager, Babel Finance and Vauld, among others. Then there’s the prominent crypto hedge fund Three Arrows Capital (which recently applied for bankruptcy) inexorably tied to much of the web of financial woe that’s clearly still yet to fully reveal.
The thing about Hodlnaut’s withdrawal freezing, though, which it announced overnight, is that it’s claiming the measure is “due to recent market conditions”. Guess it doesn’t mean the past few weeks or so, because the crypto market has been regaining some strength just lately. (Bitcoin, for instance is currently up about 10% over the past 30 days, while Ethereum has inclined 45%.)
In the announcement, the firm says it took the measure “to focus on stabilizing our liquidity and preserving assets” while consulting with Singaporean law firm Damodara Ong LLC on the “feasibility and timelines” of its restructuring plan.
The company has now also informed Singapore’s Monetary Authority (MAS) that it is withdrawing its license application, which it received in-principle approval for earlier in the year.
‘A rather small player in the space… but bad news for users’
In commentary shared with Stockhead, two industry experts – from US-based open lending platform SmartFi, and digital investment asset fund ARK36 – shared their insights on the latest crypto contagion carrier…
Chris Terry, BPSAA board member and VP of Enterprise Solutions at SmartFi was somewhat playing down the significance of the Hodlnaut drama. Well, not for those who have assets tied up with the firm, that is:
“With a couple of hundred million dollars in assets, Hodlnaut are a rather small player in the space… but it’s bad news for their users who I seriously doubt will get their money back. Any time you put your assets on deposit there’s always a risk in the world of unregulated cryptocurrency.”
Likewise, ARK36 Executive Director Mikkel Mørch said: “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,” adding:
“In all honesty, it’s a bit baffling that Hodlnaut would cite ‘market conditions’ as the reason for its predicament, since these have been steadily improving.”
‘May have had significant exposure to Terra’
Regarding Hodlnaut now withdrawing its MAS licence in Singapore, which seems a preemptive move ahead of the inevitable, Terry believes that “although regulation is not currently in place in the US, it is still a better place risk-wise… And it’s why many of the smaller crypto companies are registered off-shore in countries like the Seychelles, Mauritius, Belize and Panama.”
And as for how exactly Hodlnaut got itself into this mess, Mørch pointed to some past speculation that the firm “may have had significant exposure to Terra” and that it may have “severely misrepresented its yield sources and risk profiles” – something Hodlnaut has strongly denied.
“Now, these speculations will surely come back to life,” said the ARK36 exec, “because other than that it is difficult to point to any direct reason for the move in the general market developments.”