Crypto lending platform Vauld became the latest player in the cryptocurrency market to suspend all withdrawals, trading and deposits. The announcement came on July 4, two weeks after Vauld pruned its headcount by around 30 per cent.
The Singapore-headquartered crypto lending platform’s co-founder and CEO, Darshan Bathija, in a blog post on the company’s website, talked about the financial issues faced by Vauld’s key business partners as well as customer withdrawals exceeding $197.7 million since June 12 when the Crypto market plunged following the collapse of Terraform Lab’s UST stablecoin, crypto hedge fund Three Arrow Capital defaulting on loans and cryptocurrency lending platform Celsius network halting withdrawals.
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With this, Vauld has become the latest entrant to the list of crypto players suspending trading and withdrawals, joining the likes of crypto broker Voyager Digital and Celsius Network. In June this year, Hong Kong-based crypto lender Babel Finance suspended withdrawals and redemption of crypto assets.
Why Did Vauld Suspend Withdrawals?
Bathija, in his blog post, stated that the present market conditions led to a substantial amount of customer withdrawals in excess of $197.7 million since June 12, 2022, which saw crypto prices nosediving.
Following the withdrawals, Vauld has frozen its operations. The slump of the cryptocurrency market was sparked by the crash of Terraform Lab’s UST stablecoin, Three Arrows Capital defaulting on loans, and Celsius network halting withdrawals. All crypto players who suspended withdrawals by users stated that they faced liquidity pressures, citing this as the reason behind preventing customers from taking out their funds.
What Will Vauld Do Now?
The company is looking for new potential investors as it is mulling restructuring options. For this purpose, Vauld has hired financial and legal advisers to explore options. The crypto lending platform has engaged Cyril Amarchang Mangaldas and Rajah & Tann Singapore LLP as legal advisers in India and Singapore as well as Kroll Pte Ltd. as its financial adviser respectively. The firm is in talks with potential investors in the Vauld group of companies and is also considering a moratorium before the Singapore courts “so as to give us breathing space to carry out the proposed restructuring exercise.”
Why Are Crypto Exchanges Seeing Such A Steep Fall?
Besides global meltdown, the Indian crypto exchanges are facing one of the grimmest crises in the form of taxes. The Centre recently announced a 1 per cent tax deducted at source (TD) coupled with a 30 per cent tax on gains from virtual digital assets. Furthermore, concurrent occasions, such as stablecoin de-pegging and hedge fund liquidation only added to the crisis, pushing some crypto platforms and exchanges against the wall. The value of cryptocurrencies has seen a worrying dip of over two-thirds within one and a half years. According to Analytics Insight, the trading volume of the Indian crypto exchanges like WazirX, ZebPay and CoinDCX have plummeted by 98 per cent, 94 per cent and 93 per cent within three months of the introduction of new cryptocurrency laws. All this has led to many crypto investors developing high pessimism regarding the feasibility of holding virtual coins.
Besides, the prices of cryptocurrencies have been plunging in reaction to the US Federal Reserve hiking policy interest rates to contain inflation, consequently sucking out excess liquidity from the market.
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As of Wednesday, the World’s largest and most popular cryptocurrency Bitcoin’s price fell below the $20,000 mark. It fell 1.62 per cent to $19,989.70, whereas, Ethereum dipped 3.03 per cent to $1,131.15, according to data on Coindesk.
What’s The Big Picture Behind Suspension Of Trading By Vauld And Other Crypto Platforms?
The crucial aspect of this development is the cash-flow crisis being faced by these companies. After the collapse of Luna and TerraUSD in May this year, Three Arrows Capital witnessed its assets under management nosedive by more than 70 per cent in the wake of big investments in Luna. Ergo, Three Arrows Capital defaulted on loans worth $670 million given to extended to it by Voyager Digital.
This caused a ripple effect resulting in Voyager Digital suspending deposits, trading and withdrawals. Likewise, Celsius Network also halted all swaps, transfers and withdrawals between accounts for its1.7 million customers last month. Notably, Three Arrows Capital, familiarly known as 3AC, recently filed for bankruptcy in a Manhattan federal court.
The big picture behind all these defaults is that the crypto lenders are being knocked down by the spiralling prices of digital assets. This points to cryptocurrencies being an over-leveraged asset class.
What Are Authorities Doing About This?
The Monetary Authority of Singapore (MAS) – where 3AC, Vauld and Terraform Labs are based - is mulling introducing further safeguards on access to cryptocurrencies to the general public, a senior government minister said, Coindesk reported. According to Tharman Shanmugaratnam, the minister in charge of MAS, the central bank is expected to “place limits on retail participation" and implement regulations on the use of leverage in crypto transactions. Since 2017, MAS has been consistently cautioning that cryptocurrencies are not suitable investments for the retail public.
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