In a significant development for the cryptocurrency landscape, Singapore’s High Court has mandated the liquidation of Hodlnaut, a once-prominent player in the crypto lending market. This decision marks the conclusion of the company’s judicial management phase and underscores the challenges faced by the firm in the wake of the Terra ecosystem collapse and the downfall of FTX.
Hodlnaut, which had a significant presence in the crypto lending space, encountered severe difficulties following the collapse of the Terra ecosystem and the subsequent turmoil in the crypto market. While not directly exposed to Three Arrows Capital (3AC), Hodlnaut reportedly suffered substantial losses due to its investments in Terra’s stablecoin, TerraUSD Classic (USTC), amounting to approximately $150 million. The firm’s financial situation worsened with the demise of FTX, another major entity in the crypto industry.
The High Court’s decision to order Hodlnaut’s liquidation comes in response to an application by the company’s interim judicial managers (IJMs), marking a pivotal moment in addressing the firm’s financial troubles. The journey for Hodlnaut has been tumultuous, with the company suspending deposits and withdrawals on August 8, 2022, citing prevailing market conditions. Concurrently, Hodlnaut withdrew its licensing application from the Monetary Authority of Singapore, leading to the freezing of users’ funds since August 2022, affecting around 17,000 creditors, including notable names such as Samtrade Custodian, S.A.M. Fintech, and the Algorand Foundation.
To navigate through its financial difficulties, Hodlnaut sought court-appointed IJMs, providing the company with creditor protection and enabling a significant reduction in its workforce by 80%. However, the firm faced a police investigation related to the delay in reporting its USTC holdings.
Despite these efforts, Hodlnaut’s creditors voted overwhelmingly for liquidation in April, rejecting a proposed restructuring plan presented in January. Additionally, an offer from OPNX in August 2023, founded by former 3AC founders Su Zhu and Kyle Davies, was declined by the IJMs following a substantial drop in the value of OPNX’s FLEX token.
The High Court’s liquidation order for Hodlnaut aligns with a broader trend seen in the crypto industry, with other lenders such as Celsius having their bankruptcy plans approved by U.S. courts. The decision, currently sealed, represents the conclusion of Hodlnaut’s attempts to salvage its operations through judicial management. Aaron Loh Cheng Lee and Ee Meng Yen Angela, the former IJMs, have been appointed as liquidators to oversee this new phase.
The implications of Hodlnaut’s liquidation are likely to reverberate across the crypto market, underscoring the challenges faced by companies amidst the volatile nature of the industry. The court’s decision reflects a growing need for regulatory scrutiny and risk management within the cryptocurrency sector.
As the crypto landscape continues to evolve, investors and industry stakeholders are urged to exercise caution and diligence in navigating the complexities of this dynamic market. The fallout from Hodlnaut’s liquidation serves as a stark reminder of the need for transparency, risk mitigation, and responsible financial practices within the cryptocurrency ecosystem.
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