Orthogonal Trading defaults on $36 million of loans on Maple Finance

Quick Take

  • Orthogonal Trading has defaulted on eight loans totalling $36 million on lending protocol Maple Finance.
  • The defaults represent about 30% of active loans across the entire protocol.
  • The damage is restricted to the two affected pools.

Orthogonal Trading has defaulted on $36 million of loans on crypto lending protocol Maple Finance after the investing firm's funds became tied up on bankrupt exchange FTX.  

The default at one of Maple Finance's key ecosystem players affects some 30% of active loans on the protocol. In response, Maple Finance has severed ties with Orthogonal Trading, the parent entity that runs both a crypto hedge fund and a credit business, according to a statement. It is removing Orthogonal Trading as a borrower on the Maple Finance platform, while removing Orthogonal Credit as a delegate and shutting down its own lending pools.

Orthogonal Trading didn't respond to multiple requests for comment. 

The majority of the defaults — some $31 million — are in the M11 USDC pool, run by a separate company called M11 Credit, according to a Maple Finance spokesperson. This will lead to a roughly 80% hit for the remaining investors in that pool. The remaining $5 million is in Maven’s M11 WETH pool — a 17% hit. Other pools are not impacted.

Maple Finance expects to recover at least $2.5 million to be used to reduce the damage, according to a Maple Finance spokesperson. This will come from the pool cover — used in case of defaults — and fees accrued by Orthogonal that remain on the platform. M11 Credit is considering legal action against Orthogonal in the hope of recovering any funds.

Shocked and disappointed

Maple Finance Founder Sid Powell said he was shocked and disappointed by the incident. He acknowledged that there needs to be more stringent due diligence when it comes to undercollateralized lending and said the platform may look to introduce partially collateralized loans.

Powell highlighted that the protocol locks the funds for each pool in separate smart contracts, meaning that they’re not co-mingled. As a result, the losses were limited to each affected pool — contrasting the incident to FTX’s collapse, where Alameda Research’s losses impacted FTX’s customers.

During November, Orthogonal Trading told M11 Credit it only had minor exposure to collapsed crypto exchange FTX, according to Powell. Yet on Dec. 3, the trading firm said that it was defaulting on its loans because it had a lot more money stuck on FTX. 


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M11 Credit, a sister company of VC firm Maven 11, stated that Orthogonal Trading had said multiple times during November that it only had $2.5 million of exposure to FTX, which filed for bankruptcy protection last month.

Orthogonal Credit said that it operated independently of Orthogonal Trading and was unaware of its exposure to FTX, in a statement. "It is our understanding that Orthogonal Trading misrepresented their exposure, and hence the M11 Credit team had to take immediate action to issue a Notice of Default," it said.

What role did Orthogonal Trading have on Maple Finance?

Maple Finance is a decentralized protocol that enables institutional investors to access undercollateralized loans. Eligible companies are able to create their own lending pools and approved investors can access loans on demand within these pools.

Orthogonal Trading interacted with Maple Finance in two ways. Its credit arm operated as a delegate, meaning it processed due diligence for investors applying to access the permissioned protocol. It ran a USDC lending pool, which originated $850 million in loans and had a 1.2% default rate.

Separately, its trading arm operated as a borrower on the platform, using it to access credit. The trading arm did not access any loans in the pool run by its credit arm.

Update: This article has been updated with comments from the statement by Orthogonal Credit.

© 2023 The Block. All Rights Reserved. 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.

About Author

Tim is the Editor-In-Chief of The Block. Prior to joining The Block, Tim was a news editor at Decrypt. He has earned a bachelor's degree in philosophy from the University of York and studied news journalism at Press Association Training. Follow him on X @Timccopeland.


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