Maple Finance Says Orthogonal Hid FTX Exposure

Maple Finance has cut ties with Orthogonal Trading after it said the company was “operating while effectively insolvent” and accrued liabilities of more than $30 million. 

Orthogonal Trading had mischaracterized its financial position to Maven 11’s M11 credit pool over the last four weeks before saying on Saturday that it was unable to meet loan repayments, according to Maven 11 and Maple Finance. 

A Maple spokesperson told Blockworks that there were no signs of the insolvency, noting that financials in recent weeks were “misrepresented” and principal payments gave the appearance of solvency.

“Misrepresentation like this is in violation of Maple’s agreements and all appropriate legal avenues to recover funds will be pursued including arbitration or litigation as necessary,” Maple said in a statement Monday. 

Pool delegates on Maple’s platform are responsible for managing due diligence on borrowers and are consistently exploring ways in which assets can be further verified, a spokesperson added.

An Orthogonal Trading spokesperson did not immediately return a request for comment. 

Orthogonal Trading’s current liabilities are $31 million across four loans in the M11 Credit USDC pool. M11 Credit has restructured the loan book and closed many loans early, according to Maple.

Orthogonal Credit, which operates separately from Orthogonal Trading, said in a blog post it had no knowledge of the latter entity misrepresenting its exposure to FTX and its inability to repay an outstanding loan in the pool that matured on Sunday. 

“Orthogonal Credit has no insight to or influence over the market making and trading activities undertaken by the trading business,” the firm wrote. “In light of this development, the credit team is actively seeking strategic solutions to continue to provide credit-as-a-service across self-custodial decentralized finance protocols.”

Maple aggregates capital on behalf of large borrowers. Founded in May 2021, Maple hit $1 billion in loans in its first 10 months and has now issued more than $1.9 billion in loans, according to its website. Total deposits are now roughly $125 million. 

The several lending pools managed by distinct pool delegates are siloed to prevent activities in one pool from impacting others, a spokesperson told Blockworks.

Crypto investment firm Maven 11 revealed the launch of a $40 million institutional lending pool on Maple in August — its third on the platform.

Orthogonal Credit maintains a separate “Orthogonal Trading — USDC01” pool, which, despite its name, does not contain loans to the Orthogonal trading arm.

Orthogonal Credit wrote in its Monday blog post that assets in the USDC01 pool are protected by Maple’s smart contract infrastructure and separate from Orthogonal Trading. The pool’s three active loans are to Portofino Technologies AG, a financial infrastructure technology company incorporated in Switzerland, Wintermute Trading Limited, a major market maker, and Reliz Ltd., a Maltese marketing agency.

“We do not anticipate any impact to lenders in the pool as all loans remain active with no current signs of distress,” according to Orthogonal Credit. “Loan repayments will be made over the coming months with all available cash being used to facilitate withdrawal requests from the pool.”

Orthogonal Credit did not immediately return a request for further comment. 

A product of FTX contagion

The news comes as the crash of crypto exchange FTX continues to send ripple effects through the crypto ecosystem. 

Maple said in a statement on Nov. 9 — two days before FTX filed for bankruptcy — that borrower exposure to FTX and its native token, FTT, was limited.

A week later, Maple reported that while the past six months had “stress-tested” borrowers on the platform, many remained well-capitalized and able to withstand shocks.  

“Maple and delegates anticipate that borrowers will service their loans as expected,” the company said at the time. 

Still, pool delegates de-risked to avoid “second-order” impacts of the FTX collapse, Maple added. A total of 37 loans to 12 borrowers totaling $227 million from the week prior had been reduced to 24 loans to 10 borrowers, totalling $129 million.

While many risk mitigations are built into the Maple platform, the contagion in this instance was difficult to avoid, Maple said. 

Any fees generated in this pool ahead of its expected closure in the first quarter of 2023 are set to go toward recovering funds for lenders in the M11 Credit pool.

Maple’s MPL token was down about 24% in the past 24 hours, as of 12:15 pm ET Monday.

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