Orthogonal Trading Gets Default Notice for $36M Debt

Orthogonal Trading has defaulted on eight loans worth around $36 million on DeFi lending protocol Maple Finance. 

The default has resulted in Maple Finance severing ties with Orthogonal Trading for misrepresenting its financial position. 

A $36 Million Default 

It has emerged that crypto firm Orthogonal Trading has defaulted on $36 million worth of loans taken on DeFi lending protocol Maple Finance. The default came after it was revealed that Orthogonal Trading’s funds had become tied up with bankrupt crypto exchange FTX. The default is considered significant, impacting 30% of all active loans on the lending protocol.

As a result of the default, Maple Finance has severed all ties with Orthogonal Trading. Orthogonal Trading runs a credit business and a crypto hedge fund. According to the statement released by Maple Finance, it is removing the firm as a borrower on the Maple Finance platform, and also removing Orthogonal Credit as a delegate, and shutting down its lending pools.

M11 Credit Issues Default Notice 

Orthogonal was due to repay a $10 million USDC stablecoin loan from a credit pool managed by M11 Credit. The company was a significant borrower on Maple Finance and also a manager and underwriter of a credit pool on the DeFi protocol. As a result of the default, M11 Credit issued a notice of default to Orthogonal for all of its outstanding loans on Maple’s USDC Stablecoin Pool. 

The majority of the defaults, amounting to around $31 million, are in the M11 USDC pool, run by M11 Credit. The default notice also covers Orthogonal’s wrapped ether (wETH) loans worth around $5 million. This loan is from another M11 Credit-managed lending facility on Maple. 

In a blog post, M11 stated that Orthogonal misstated their exposure to FTX. The post added, 

“We believe that Orthogonal Trading previously purposefully misstated their exposure and has therefore committed a serious breach of the Master Loan Agreement (MLA). Rather than cooperating with us and disclosing their exposure, they attempted to recover losses through further Trading, ultimately losing significant capital.”

According to M11 Credit, Orthogonal only informed them on the 3rd of December that it had incurred larger than disclosed losses due to its exposure to FTX and, as a result, would not be able to repay its debt. 

“We are extremely shocked and disappointed by the actions of Orthogonal Trading. Purposefully misstating information during the numerous contacts we have had over the last weeks severely impacted our ability to manage our outstanding credit risk.”

Maple Finance Severs Ties 

As a result of the default, Maple Finance decided to sever ties with Orthogonal, stating that the company had misrepresented its financial position. In a scathing statement, Maple stated that Orthogonal was “operating while effectively insolvent” and did not communicate to Credit M11 or Maple Finance that it would be unable to service the debt. The statement added, 

“It is now clear that they [Orthogonal Trading] have been operating while effectively insolvent, and it will not be possible for them to continue operating a trading business without outside investment. 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.”

According to a Maple Finance spokesperson, the firm expects to recover at least $2.5 million, which will be used to cover the damage from the default. These funds will come from the pool cover and fees accrued by Orthogonal, which are still on the platform. M11 Credit is also considering legal action against Orthogonal, hoping to recover some of the funds. 

Maple Finance Founder Disappointed By Events 

Sid Powell, the founder of Maple Finance, revealed that he was shocked and disappointed by the incident. However, he also acknowledged the growing need for more stringent due diligence when it comes to undercollateralized lending. He added that the platform might look to introduce partially collateralized loans moving forward. 

Powell also assured users that the protocol locks pool funds in separate smart contracts and that the losses were limited only to the impacted pools. Funds in other pools remained safe, Powell stressed. 

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice