Crypto firm found to be hiding evidence of massive loss
TL:DR
- The crypto lender Hodlnaut is in hot water after losing almost $190 million in the Terra crash. According to a recent report, the company’s directors downplayed the extent of their exposure to the Terra ecosystem, which ultimately led to the massive loss.
- Now, Singapore is considering tighter regulations on crypto lending and staking in order to protect investors from future losses. The proposed measures include a knowledge test for prospective investors and a ban on mortgaging, charging, or pledging crypto assets.
- It remains to be seen how these proposed regulations will impact the crypto lending industry. but one thing is for sure: Hodlnaut’s loss is a cautionary tale that highlights the risks of investing in digital assets.
Hodlnaut Judicial Findings
A judicial report has reportedly revealed that crypto lender Hodlnaut lost around $189.7m due to its exposure to the Terra crash. According to Bloomberg, the report, penned by interim judicial managers appointed by the Singapore High Court, alleged that Hodlnaut’s directors “downplayed the extent of the group’s exposure to Terra/Luna both during the period leading up to and following the Terra/Luna collapse in May 2022”.
The Singapore-based firm, founded in 2019, joins the likes of Celsius, Voyager Digital, and Three Arrows Capital, who were also devastated by exposure to the Terra ecosystem and its doomed algorithmic stablecoin UST. The firm shuttered withdrawals in July 2022, citing “recent market conditions” and a focus on stabilizing its liquidity and “preserving assets”. In August, the Singapore High Court appointed two employees from EY Corporate Advisors, Ee Meng Yen Angela, and Aaron Loh Cheng Lee, to act as interim judicial managers (IJMs).
Per Bloomberg, the report also stated that more than 1,000 deleted documents from Hodlnaut’s Google Workspace could have helped shed light on the business, while the interim judicial managers have failed to obtain “key documents” relating to the firm’s Hong Kong arm, which owes around $58 million to its Singapore division.
The firm’s financial difficulties haven’t just impacted investors. Hodlnaut axed 80% of its staff, around 40 people, “to reduce the company’s expenditure” shortly after closing withdrawals. The relationship between Hodlnaut and its administrators has been a bumpy one. Earlier this month, Hodlnaut founder Simon Lee petitioned the Singapore High Court to remove EY as its IJM, accusing the multinational consulting firm of dishonesty.
Singapore regulators and crypto
In the wake of several high-profile crypto lenders collapsing, Singapore regulators are proposing new measures to protect investors. The Monetary Authority of Singapore (MAS) has proposed that digital asset service providers “should not mortgage, charge, pledge or hypothecate the retail customer’s” crypto, with hypothecation referring to the process of using an asset as collateral in exchange for a loan.
This measure is designed to protect investors from suffering the same losses as those who invested with Hodlnaut, which lost almost $190 million in the Terra crash. The firm is alleged to have downplayed the extent of its exposure to the Terra ecosystem, and its financial difficulties have impacted investors and staff alike.
In addition to this, prospective investors may soon be required to pass a knowledge test before they can buy or sell digital assets. This will assess whether or not they understand potential investment risks such as market volatility and technology failures. These proposed measures show that Singapore is taking steps to protect investors from future losses and create a more regulated environment for digital assets.
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