Algorand Foundation Reveals a $35 M Exposure to Hodlnaut

Key Takeaways

  • Algorand states the funds were surplus to day-to-day requirements and represent less than 3% of the Foundation’s assets.
  • The firm says it is pursuing all legal remedies to maximize asset recovery.

Algorand Foundation, a nonprofit body that supports the Algorand blockchain, has revealed a $35 million exposure to battered crypto lender Hodlnaut.

“These funds were surplus to day-to-day requirements and represent less than 3% of the Foundation’s assets, and we do not anticipate operational or liquidity issues due to this action”, Algorand’s blog post reads.

Further in its announcement, Algorand pointed out that most of its investment consisted of locked, short-term deposits that are now unavailable owing to Hodlnaut’s suspension of withdrawals.

Algorand adds that it usually invests a portion of its surplus treasury capital to generate yield for the purpose of Algorand ecosystem development, and the $35 million funds with Holdnaut exposure were invested for that purpose.

The firm noted it was pursuing all legal remedies to maximize asset recovery.

Hodlnaut’s financial situation first deteriorated when its $300 million investment in TerraUSD (UST) on the Anchor protocol experienced a sharp decline after it was de-pegged and the LUNA token collapsed.

As a result, the crypto lending company halted user withdrawals, token swaps, and deposits on August 8, citing a liquidity crisis, and applied to be put under judicial management on August 13.

On August 30, the crypto lender announced it had been placed under interim judicial management by the Singapore High Court.

To protect Hodlnaut’s assets until further legal action can be taken, the Singapore High Court appointed the Algorand Foundation’s nominees Angela Ee and Aaron Loh of EY Corporate Advisors as the Interim Judicial Managers for Hodlnaut.

Although the judicial management gives Hodlnaut much-needed creditor protection, the Singapore-court-appointed managers of Hodlnaut said the forthcoming Ethereum network’s transition to Proof-of-Stake, also known as the Merge poses a liquidation risk to the company’s distressed assets, and it is considering selling them to limit potential losses.

Reportedly, the Merge may lead the oracles to “give out erroneous prices during the transition,” leading smart contracts to automatically liquidate the company’s assets.

“One of the ways of mitigating such risks in advance of the Merge would be for Hodlnaut HK to unwind the Tokens deployed on the DeFi platforms, which may result in material losses,” Loh Cheng Lee said.

Saniya Raahath
Saniya Raahath

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