Crypto lender Hodlnaut seeks legal protection after $200 million loss
Cryptocurrency lending firm Hodlnaut is the latest victim of “crypto winter” after it revealed it is seeking legal guidance to rehabilitate the startup after it withheld withdrawals earlier this month.
The company confirmed that it has been put in a bad position in an update posted on Friday. According to Hodlnaut, the current poor financial health is due to a number of factors, including losses incurred by its Hong Kong subsidiary during the TerraUSD crash, subsequent high withdrawal volumes and falling cryptocurrency prices.
According to the court filing, filed Aug. 12 and obtained by The Block, the company froze withdrawals on Aug. 8 because Hodlnaut was suffering a loss of approximately $193 million. The company also stated that it is facing police cases in Singapore and that it has laid off 80% of its staff, about 40 employees, in an effort to reduce expenses.
The massive amount of losses occurred because the company invested roughly $317 million in TerraUSD, a failed “algorithmic” stable coin, which collapsed in May. Stablecoins are a type of cryptocurrency that maintains a one-to-one parity with another currency, in this case the US dollar. In early May, TerraUSD lost its lot with the USD, then its sister currency lost 99% of its value in less than a week, wiping $60 billion from the crypto market in the process.
The company said it is seeking legal guidance to avoid liquidating its bitcoin and Ethereum holdings at current market values.
“Legal administration gives Hodlnaut the opportunity to implement its recovery plan and rehabilitate the company,” the company wrote in the announcement. “The plan aims to restore the asset-liability ratio to at least 1 and eventually allow users to withdraw the full value of their cryptocurrency deposited with Hodlnaut.”
The hearing is set for today and if successful, an interim presiding judge will be appointed by the court in Singapore.
Hodlnaut is just the latest in a long line of major and minor crypto services to suffer in the wake of TerraUSD’s crash. Crypto lender Celsius Network, crypto broker Voyager Digital and crypto hedge fund Three Arrows Capital all filed for bankruptcy in July in connection with the event.
