Vauld granted 3-month creditor protection in Singapore

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Digital asset lender Vauld has been granted three-month protection from its creditors by a Singaporean court. The troubled lender, which recently suspended withdrawals, had applied for a six-month moratorium, but a judge ruled against it, cutting this time in half.

Vauld is one of the several casualties of the collapse of Terra and its two tokens—TerraUSD (UST) and LUNA. Alongside other bigger names in “crypto” lending, such as BlockFi and Voyager Digital, it had many of its customers’ deposits invested in highly risky bets to pay out ludicrous interest and attract more capital. When the house of cards inevitably collapsed, BlockFi and Voyager folded and filed for bankruptcy. 

Vauld at first distanced itself from Terra and its failing peers, claiming that its financial position was as sound as it has always been. However, in early July, it suspended withdrawals and hired advisors to explore restructuring.

On July 8, it applied for a moratorium order, seeking protection from its creditors for the next six months. It claimed it would use this time to restructure and allow another lender, Nexo, enough time to evaluate its books for a possible acquisition.

A Singaporean judge has granted its request, well, partly. Justice Aedit Abdullah gave Defi Payments Ltd., Vauld’s parent company, a moratorium that lasts until November 7. Within these three months, the company is protected from any legal action by any of its 147,000 creditors, 90% of which are retail customers.

While he left the door open for an extension of the moratorium, the judge stated, “I am concerned a six-month moratorium won’t get adequate supervision and monitoring.” 

Justice Abdullah ordered the Peter Thiel-backed lender to form a creditors’ committee to address the issues it faces. He called the company to provide details such as a valuation of its assets and its cash flow to its creditors within the next two weeks. It must also provide details about the management of its accounts in eight weeks.

Vauld welcomed the ruling, with its lawyer Sheila Ng saying it will heed the court’s ruling. However, she told media outlets that the company still needs six months to restructure and put its house in order for a possible acquisition by Nexo.

Nexo co-founder Antoni Trenchev also welcomed the ruling and claimed that he remains optimistic that his firm will acquire the troubled lender. However, he pointed out that the process needs time.

“…but we have to understand the liabilities, the receivables, who the counterparties are, what are the prospects of getting those receivables and, you know, all things like that in order to be in a position in order to make a decision. And it takes time,” he said.

The ‘crypto’ house of cards was bound to collapse

Vauld’s collapse was not a big surprise. For one, bigger lenders in Voyager Digital and BlockFi had already given us a peak into the ‘crypto’ house of cards, how it’s all interlinked, and how the collapse of one entity had a ripple effect on the industry. It started with Terra and spread onto Three Arrows Capital, BlockFi, Voyager, Babel Finance, and so on. 

The biggest difference was that Vauld was not as U.S.-centric as the other collapsed companies. While it was based in Singapore, most of its staff members were in India, as were most of its customer base. According to court documents, of the $402 million it owes to creditors, $363 million (90%) was from retail investors.

Vauld was offering very high interest to depositors—12.68% annual yield on TerraUSD and 6.7% on BTC. This forced it to make highly risky bets, ultimately leading to its downfall. 

But as with all the others, this business model was a magnet for big money. The company attracted the backing of the controversial Peter Thiel through his Valar Ventures, Coinbase Ventures, and Pantera Capital. 

For now, the acquisition by Nexo seems like Vauld’s best chance at redemption. If this falls through, the lender intends to raise additional funds from investors to cover its shortfall, and if this fails, it will go down the road CoinFLEX, and other troubled firms have taken issue yet another worthless token, hoping to rope in new unsuspecting investors.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple, 
Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.