By Michael Scott
DeFi lending protocol has announced ending its business engagement with Orthogonal Trading following the discovery of the latter’s material misrepresentation of financial position to the Mavens M11 Credit.
The statement by Maple Finance on December 5 alerted the community of the tough decision after Orthogonal Trading failed to honor 8 $36 million loans. Expressing disappointment, Maple Finance founder Sid Powell admitted the association involved the Borrower and Pool Delegate roles.
Ending Business Ties with Insolvent Orthogonal Trading
The official announcement conveyed via Maple Finance website confirmed severing ties with Orthogonal Trading was inevitable as the material misrepresentation contravened the initial agreements.
Powell expressed shock at Orthogonal Trading’s dishonesty a month ago by assuring of its strong financial health to MII credit. The disappointed executive questioned the corporate values and morals when Orthogonal confessed its inability to settle loan repayments.
Powell regretted the assurance offered 4 weeks ago as it revealed dishonesty when Orthogonal Trading operated while concealing its insolvency. He added that the misrepresentation contravened Maple Finance’s business engagement principles. Powell declared Maple would tap legal avenues, such as litigation and arbitration, to recover the $36 million.
The termination notice issued by Maple Finance ended all association with Orthogonal, citing the firm’s inability to retain operations without securing outside investment. Powell retaliated that Maple would not tolerate bad actors and firms misrepresenting business operations. However, he assured investors of Maple’s commitment to offering on-chain lending protocol.
Powel admitted the shock of the FTX insolvency scale as causing an outsized impact strangling lenders within the crypto space. He acknowledged that contagion in Orthogonal defaulting the loans was inevitable despite the multiple risk mitigants within the Maple on-chain infrastructure.
Impact on M11 M11 Credit Pool
The official announcement of Maple severing business ties with Orthogonal Trading recognizes the credit lending pool operated autonomously. As a critical player in the ecosystem, Orthogonal Credit lending book realized $850m with defaults restricted to 1.2%.
Maple considers the Credit team to exercise professionalism and uphold integrity. Powell believes recent efforts by the Credit Team to pursue strategic solutions citing autonomous operations.
While the assets are protected using the smart contract, they show little signs of distressed loans. Loan repayments and available cash will settle the withdrawal requests, while fees generated by the first quarter of 2023 will constitute the funds recovered for lenders within the pool.
Notice Effect on M11 Credit USDC
Maple estimates that Orthogonal Trading accrued liabilities of $31 million in the 4 loans within the M11 Credit USDC pool. M11 credit announced the restructuring of the loan book. Also, the prudent closure of loans earlier limited the exposure to insolvent Orthogonal Trading to 14%. Powell admits that it lies within the risk framework.
Maple promised to pursue legal channels to pursue funds owed since Orthogonal Trading has many loans. The DeFi lending protocol considers the apparent source is the credit lending pool. In particular, Maple will turn to the Pool Cover established at the launch alongside earnings generated until the operations halt.
Powell clarified that Maple would hold the recovered funds using smart contracts for fair use by lenders within the M11 credit pool.