Crypto lending platform Vauld has become the latest cryptocurrency market player to suspend all withdrawals, trades and deposits. The announcement was made on July 4, two weeks after Vauld cut its workforce by around 30%.
Darshan Bathija, co-founder and CEO of the Singapore-based crypto lending platform, in a blog post on the company’s website, spoke about the financial issues faced by Vauld’s major business partners as well as withdrawals of customers surpassing $197.7 million since June 12 when the Crypto Market plunged following the collapse of Terraform Lab’s UST stablecoin, loan-defaulting crypto hedge fund Three Arrow Capital, and crypto exchange. -form of Celsius cryptocurrency lending, which has halted withdrawals.
With that, Vauld became the latest entrant to the list of crypto players suspending trades 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, said that current market conditions have resulted in a substantial amount of client withdrawals exceeding $197.7 million since June 12, 2022, which has caused crypto prices to plummet.
Following the withdrawals, Vauld froze its operations. The cryptocurrency market crash was triggered by the crash of Terraform Lab’s UST stablecoin, Three Arrows Capital’s default on loans, and the shutdown of withdrawals from the Celsius network. All crypto players that have suspended user withdrawals said they were facing liquidity pressures, citing this as the reason for preventing customers from withdrawing their funds.
What will Vauld do now?
The company is looking for potential new investors as it considers restructuring options. To that end, Vauld hired financial and legal advisers to explore the options. The crypto lending platform has engaged Cyril Amarchang Mangaldas and Rajah & Tann Singapore LLP as legal advisers in India and Singapore, along with Kroll Pte Ltd. as a financial advisor respectively. The company is in talks with potential investors in the Vauld group of companies and is also considering a moratorium in the Singapore courts “to give us breathing space to complete the proposed restructuring exercise.”
Why are crypto exchanges experiencing such a steep drop?
Apart from the global meltdown, Indian crypto exchanges are facing one of the darkest crises in the form of taxes. The Center recently announced a 1% withholding tax (TD) coupled with a 30% tax on gains from virtual digital assets. Moreover, simultaneous occasions, such as the detachment of stablecoins and the liquidation of hedge funds, have only deepened the crisis, pushing some platforms and crypto exchanges against the wall. The value of cryptocurrencies has seen a worrying drop of more than two-thirds in a year and a half. According to Analytics Insight, the trading volume of Indian crypto exchanges such as WazirX, ZebPay, and CoinDCX dropped by 98%, 94%, and 93% in the three months following the introduction of the new cryptocurrency laws. All of this has led many crypto investors to develop high pessimism about the feasibility of holding virtual coins.
Additionally, cryptocurrency prices fell in response to the US Federal Reserve raising key interest rates to contain inflation, thereby sucking excess liquidity from the market.
On Wednesday, the price of the world’s largest and most popular cryptocurrency Bitcoin fell below $20,000. It fell 1.62% to $19,989.70, while Ethereum fell 3.03% to $1,131.15, according to data from Coindesk.
What is the bigger picture behind the suspension of trading by Vauld and other crypto platforms?
The crucial aspect of this development is the cash crisis faced by these companies. After the collapse of Luna and TerraUSD in May this year, Three Arrows Capital saw its assets under management fall by more than 70% following large investments in Luna. Ergo, Three Arrows Capital defaulted on loans worth $670 million granted to it by Voyager Digital.
This caused a ripple effect resulting in Voyager Digital suspending deposits, trading and withdrawals. Similarly, Celsius Network also halted all exchanges, transfers and withdrawals between the accounts of its 1.7 million customers last month. Notably, Three Arrows Capital, colloquially known as 3AC, recently filed for bankruptcy in federal court in Manhattan.
The big picture behind all of these flaws is that crypto lenders are being bowled over by soaring digital asset prices. This indicates that cryptocurrencies are an overexploited asset class.
What are the authorities doing about it?
The Monetary Authority of Singapore (MAS) – where 3AC, Vauld and Terraform Labs are based – is considering introducing new safeguards on access to cryptocurrencies to the general public, a senior government minister has said, Coindesk reported. . According to Tharman Shanmugaratnam, the minister in charge of MAS, the central bank should “impose limits on the participation of individuals” and implement regulations on the use of leverage in crypto transactions. Since 2017, MAS has consistently warned that cryptocurrencies are not suitable investments for the general public.