Maple Finance caught by Celsius, Babel Finance collapses
One of those positions was at Maple Finance. The startup’s model is based on the corporate underwriting business of traditional banks, but replaces the operations team with blockchain technology.
“We’re not replacing the credit risk team, though,” Powell said. “When you lend into a pool, you take on the credit risk of the borrowers, that’s what lenders need to consider.”
Maple Pool Execution Request
Earlier this year Celsius, which had $12 billion in assets under management, contacted Maple co-founders Mr. Powell and Joe Flanagan to ask if the company could manage one of the pools and lend out $50 million. of dollars.
Generally, Maple prefers many lenders to pay out, but in the case of Celsius, the U.S. giant chose to be the sole lender, Powell said.
Once Maple completed its background checks on Celsius, it created a trading pool where Celsius could pour in its investor’s money and start lending it out.
The types of companies that borrow crypto capital from Maple pools are often “market makers”. In traditional finance, banks often play this role, buying and selling assets indiscriminately and charging fees to provide this liquidity.
For a while Celsius’ pool on Maple was working fine. Market makers Wintermute and Amber Group had borrowed Celsius crypto and were paying the 3.8% interest without incident. The terms of the loan were for six months, maturing in August.
But in late June, a Singapore-based hedge fund called Three Arrows Capital defaulted on a $670 million loan and, coupled with its $200 million exposure to terra, a widely held stablecoin that collapsed early. of the month, the fund went into free fall.
It is unclear how much Celsius had invested in Three Arrows Capital, but the Singaporean firm failed to respond to several margin calls, not only from Celsius but from other lenders such as BlockFi and Babel Finance.
The collapse of terra and the revelation that Three Arrows Capital had deployed most of its $10 billion war chest in highly leveraged positions sparked widespread panic in the crypto markets.
Most market participants were already nervously watching the darkening macroeconomic clouds, with interest rates rising and stock markets falling.
Money rushed out of all sorts of investments, from blockchain infrastructure tokens to DeFi lenders to Bitcoin and Ethereum.
Celsius, which advertised itself as a “safe deposit institution”, was not immune and was suddenly under pressure to start refunding depositors their money. The company failed to meet its own margin calls on several occasions.
On a Sunday afternoon, the Celsius team posted an announcement freezing withdrawals. They also contacted Maple to request a refund of their $50 million.
But Maple has no discretion over the unwinding of positions.
“We told them they needed to speak directly to borrowers in the pool to see if they could return the funds sooner,” Mr Powell said. “But borrowers would be charged a fee for that.”
Some borrowers were not ready to release the loans earlier. Apart from that, Celsius has imploded dramatically. The US-based team has since called liquidators and is rushing to redeem as much crypto as possible.
But as the crypto markets continued to slide, Maple was saddled with another client – one of its borrowers in another trading pool called Babel Finance.
Like Celsius, Babel was another centralized lending firm and one of Maple’s few borrowing clients that was not a market maker.
Babel Finance, which had cleared Maple’s due diligence reviews in part through new US$80 million funding at a $2 billion valuation a few weeks earlier, had borrowed $10 million from one of Maple trading pools.
But, like Celsius, Babel had lent huge portions of its balance sheet to Three Arrows Capital. When the hedge fund exploded, Babel’s team was unable to liquidate the collateral it had on all the loans quickly enough.
As such, it halted withdrawals. Last week, Maple announced to pool participants that one of the borrowers had defaulted.
Mr. Powell points out that the Maple pool itself did not experience any dysfunction, but rather that the lender suffered from a liquidity crisis.
Celsius is scrambling to find crypto money to pay off creditors, and Three Arrows Capital is facing accusations from the Monetary Authority of Singapore that it misled investors and ignored management limits actives.
Powell said much of the current crypto market carnage was caused by over-leveraged crypto lenders who were unable to unwind their positions quickly enough to meet investor demand to sell.
“Automating margin calls rather than unwinding them manually would certainly help, but more importantly, the on-chain visibility would have helped investors know where their money was going, rather than in those black boxes,” he said. he declares.
As Maple Finance prepares for a time when the appetite for providing loans to other crypto businesses may be limited, Powell is bullish on the deal.
“We are not a product marketed to moms and dads as a replacement for a bank account,” he said.
“You make term loans on credit, and it is underwritten to reach a high figure after any loss due to defaults. Ultimately, these loans carry credit risk.