Published
1 year ago on
December 07, 2022
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Smart contract insurance platform Nexus Mutual has revealed that it expects to take a significant loss on its investment in a Maple Finance Credit Pool.
It was also revealed that the smart contract auditing platform Sherlock would also be taking a considerable hit.
A Sizable Loss
Nexus Mutual has stated that it is expecting a significant loss on its investment in a Maple Finance credit pool. Nexus revealed the loss in a statement released on Monday, where the platform warned of a potential loss of around 2461 ETH, worth around $3 million, resulting from Orthogonal trading’s recent default to Maple.
Nexus is a peer-to-peer, risk-sharing protocol that offers alternatives to insurance against risks such as DAO hacks and smart contract bugs in decentralized finance governed by NXM token holders. Nexus had, back in August, deposited 15,463 ETH, worth around $19.3 million at current prices, into a wrapped ETH (wETH) credit pool on Maple Finance, prompting some observers to speculate that the final loss could be significantly more.
More Trouble Brewing?
Pseudo Anonymous Twitter user DeFiyst speculated that over 69% of the deposited ETH remains in the M11 wETH pool. Recent defaulter Orthogonal Trading makes up around 17.6% of the M!! wETH pool’s loans, while Auros makes up just over 37% of the pool’s loans. Auros has already been given two loan extensions but has failed to make payments for a 2400 wETH loan and a 6000 wETH loan from the wETH pool. Some speculation has been that the protocol has been entangled with the FTX fiasco. A Twitter user speculated,
“Auros is like 15-20% of Maple’s active loans. Auros are skirting the brink of default on Clearpool as well. Maple delegates have extended Auros loans twice now with no comms from Maven, Maple, or Auros. Auros has not tweeted since Nov 8 when FTX turned off withdrawals.”
According to Maple Credit’s dashboard, the troubled debt represents around 56% of the $27.8 million debt in the wETH credit pool. Additionally, only $3.1 million in cash deposits are not tied up with loans, severely limiting Nexus’ ability to withdraw funds.
Nexus Provides Update On Auros
In its statement, Nexus also provided an update on the situation with Auros and Orthogonal Trading. In the statement, the platform mentioned that it had been made aware of short-term liquidity issues at Auros, which had impacted their ability to make repayments in the immediate future. The statement added that M11 Credit had reviewed Auros’ financial statements and given them a short-term extension based on their path to recovery. Based on this, Nexus stated it believes it can expect a high recovery on the loans disbursed to Auros. According to the statement, the losses from Auros are expected to be much smaller than those from Orthogonal Trading.
In the case of Orthogonal Trading, Maple stated that it expected the firm to default on all outstanding loans. Maple stated that as a result of Orthogonal misrepresenting its financial position, the company was severing all ties with the parent entity and would take appropriate legal action.
Sherlock Also Reveals Losses
Sherlock allows DeFi users to stake USDC and insure protocols audited by the team, earning yield in the process. However, some of the yield generated was derived from Maple Finance yield strategies, some of which had exposure to the M11 Credit USDC pool. According to Jack Sanford, co-founder of Sherlock, the platform is anticipating a $4 million loss due to the Orthogonal default. Sanford added,
“I am truly sorry on behalf of Sherlock for the loss in the Maple pool. And I think Sherlock will need to take drastic action to create a better staking pool setup in the future that doesn’t rely on competing with the highest APY of the day.”
Disclaimer: 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.
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