$197 700 000+ USD

JULY 2022

GLOBAL

VAULD

DESCRIPTION OF EVENTS

"Build Wealth Automatically With Crypto. Earn. Borrow. Trade. GET STARTED NOW." "Founded in 2019, Vauld (previously known as Bank of Hodlers) is a Singapore headquartered crypto lending and trading platform. It enables customers to buy, lend, borrow and trade crypto assets from one unified platform and is backed by Peter Theil’s Valar Ventures, Coinbase Ventures, Pantera Capital, and other major names in the industry."

 

"Vauld enables customers to earn what it claims to be the “industry’s highest interest rates on major cryptocurrencies.” On its website, it says it offers 12.68% annual yields on staking several so-called stablecoins, including USDC and BUSD and 6.7% on Bitcoin and Ethereum tokens. The platform allowed customers to borrow against their tokens and also facilitated several other trading services."

 

"Incorporated in 2018, Vauld is a crypto lending platform, which encourages long-term investing by offering SIP options and higher interest on crypto holdings to its users. More than 275 coins are listed on its platform." "With users in over 50 countries, Vauld makes it easier than ever to bank on the blockchain through a diverse spectrum of financial products and advanced trading features in addition to offering among the highest yields in the industry."

 

"It’s unclear how many users Vauld serves." "Majority of the Vauld users were Indian, who accounted for 20 per cent of the AUM & contributed $10-15 million daily volume on the platform. However, the company claimed that the majority of its users hailed from the US." "The number 1 problem in crypto is - lack of information. We're here to solve this."

 

"Earn the industry’s highest interest rates on major cryptocurrencies." "Opt-in to fixed deposits to earn higher interest rates. Opt-out with zero penalties." "Interest is calculated daily, and paid out weekly on all your tokens." "Withdraw any amount at any time while you earn interest." "Interest earned is compounded every week or at the end of the fixed deposit term."

 

"Vauld offers multiple layers of security, including MFA and the option of Safelisting, which limits token withdrawals to addresses that you designate as safe. Vauld’s cold wallets are secured using BitGo." "The funds allocated for lending is lent out to borrowers (with a float maintained for withdrawals on the platform). This lets us give interest to our users. The loans to our borrowers are risk free. They are overcollateralised by at least 150%, and are typically repaid in 30 days."

 

"We have always maintained a balanced and conservative approach to liquidity management. Bull and bear runs are inevitable, and we deploy fundamentally strong strategies that account for these cycles." "Our core goal is to give a delightful experience to our customers, and our business, product and tech goals are aligned accordingly. We take the time to listen to them, incorporate their feedback. and resolve their problems as quickly as possible. We take customer satisfaction very seriously."

 

"The company earned very little or no brokerage income but instead generated large sums of interest income by lending crypto to other projects for arbitrage. This is as good as banks lending money to others." "However, it could not save itself from macroeconomic downtrends including the crypto winter, Luna collapse, Celcius sage and bankruptcy of Three Arrows Capital. This led to panic among the users, who started to withdraw their funds from various exchanges."

 

"In an earlier attempt for survival, the company laid off 30 per cent of its staff in June, slashed its marketing budget and trimmed its executive compensation. Though, nothing could come to save a day for Vauld." "Ultimately, new tax rules and overall pessimism in the crypto market were a final nail in the coffin for Vauld, which saw liquidation worth more than $200 million in less than a month."

 

"Singapore-based lending platform Vauld [was] the latest to prohibit customers from withdrawing funds after suffering a US$200mln bank run since June 12." "Vauld founder and chief executive Darshan Bathija said the startup is exploring restructuring options and has engaged with Kroll for financial advice and Cyril Amarchand Mangaldas and Rajah & Tann for legal advice in India and Singapore, respectively."

 

"The Vauld management wishes to inform that we are facing financial challenges despite our best efforts. This is due to a combination of circumstances such as the volatile market conditions, the financial difficulties of our key business partners inevitably affecting us, and the current market climate which has led to a significant amount of customer withdrawals in excess of a $197.7 m since 12 June 2022 when the decline of the cryptocurrency market was triggered by the collapse of Terraform Lab’s UST stablecoin, Celsius network pausing withdrawals, and Three Arrows Capital defaulting on their loans."

 

"[W]e have made the difficult decision to suspend all withdrawals, trading and deposits on the Vauld platform with immediate effect. We believe that this will help to facilitate our exploration of the suitability of potential restructuring options, together with our financial and legal advisors. We seek the understanding of customers of the Vauld platform that we will not be in a position to process any new or further requests or instructions in this regard. Specific arrangements will be made for customer deposits as may be necessary for certain customers to meet margin calls in connection with collateralised loans."

 

"On 8 July 2022, our counsel in Singapore, Rajah & Tann Singapore LLP, have filed an application in the Singapore Courts on behalf of Defi Payments Pte. Ltd. (“Defi Payments”) to seek a moratorium order under section 64 of the Insolvency, Restructuring and Dissolution Act 2018 to prohibit for the period of 6 months, amongst others, any order or resolution to wind up Defi Payments, and any commencement or continuation of any proceedings against Defi Payments (the “Application”)."

 

"Vauld did specifically say on their website that crypto loans were over-collateralized by at least 150%. The website still even shows this. This was clearly false and I think one could make the valid argument that this falls under "dishonest acts by employees and executives". They did also sent out that e-mail before halting withdrawals that misrepresented their financial position."

 

User /u/redditsoffiicalbotmod reports "Based on them, their CEO directly, lying I put funds in... If they were stopping withdrawals before the shut down then they knew they were lying and should've stop my deposits being made as they knew they were about to pull the plug and essentially steal my money."

 

User /u/brianemurray reports "They told me that the internal review would take up to 48 hours because it was over 200k. Vauld website states this as well for large account holders. Cool all is fine but the problem was 7 days later they still never released my funds and then shut down the platform." "[M]y request was way before the platform shut down or there was even an issue. They purposely held my funds and others to keep a cash stash."

 

"I have hired an attorney and they have requested the insurance policy from Bitgo. Bitgo has refused to comply with the request." "Bitgo refused to send us a copy of the insurance policy. My attorney said the only way to get the policy now is to SUE Bitgo and file against them."

 

"London-based crypto lending firm, Nexo, is set to acquire fellow lender and crypto exchange Vauld and has signed a term sheet for buying 100 per cent stake in the latter one. Nexo aims to use the acquisition to accelerate its presence in Asia. Vauld has 60 days of exclusive talks to explore an all-equity acquisition of the company." "Market experts gave the acquisition by Nexo a thumbs up, seeing it as a relief for the investors. However, such processes consume enough time, requiring thorough due diligence and current financial status of the company." "Sharat Chandra, VP- Research & Strategy, EarthID said that the acquisition of Vauld by Nexo should comfort investors but will have to wait until the acquisition process is complete and normalcy returns to the platform."

 

"Our management remains fully committed to working with our financial and legal advisors to the best of our abilities to explore and analyse all possible options, including potential restructuring options, that would best protect the interests of Vauld’s stakeholders." "We've strived to be an excellent crypto lending platform. This has been our goal from day one. We’re committed to finding the best resolution for our customers."

Vauld was a trading and lending platform established in 2018 or 2019. Multiple cryptocurrency users chose to trust the platform Vauld with their funds, which promised really high interest rates and continual assurances that everything was safe, all the way leading up to their July 4th announcement that withdrawals were suspended.

 

The Vauld platform is currently undergoing an acquisition by Nexo, details of which are not provided.

 

The total amount of the loss to customers is unknown, however details provided that there was a "bank run" of at least $197.7m. Customers have, as of yet, been unable to receive any funds from the platform.

HOW COULD THIS HAVE BEEN PREVENTED?

The primary problem happened due to the failure to back customer assets. All assets including those traded were affected, and there was no visibility into the way that funds were backed or the level of risk being taken. Lending products fundamentally depend on the lender being paid back, which is difficult to ensure. Users deserve transparency into the level of risk being taken on, which is best provided by multiple independent third parties.

 

Check Our Framework For Safe Secure Exchange Platforms

Sources And Further Reading

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