Crypto Audit Platform Sherlock Expects $4M Loss From Troubled Loans on Maple Finance

Sherlock deposited $5 million USDC of its staking pool into the beleaguered credit pool on Maple, which suffered a $31 million hit from Orthogonal Trading’s FTX-induced insolvency.

AccessTimeIconDec 7, 2022 at 1:12 a.m. UTC
Updated Dec 7, 2022 at 3:17 p.m. UTC

Smart contract auditing platform Sherlock predicted a $4 million loss for its stakers, about a third of the capital in its staking pool, because of Orthogonal Trading FTX-induced loan defaults on crypto lending protocol Maple Finance, the firm said Monday in a blog post.

Sherlock said it had deposited some $5 million USDC of its $12 million staking pool on Aug. 31 to the credit pool on Maple overseen by M11 Credit.

Orthogonal Trading’s insolvency triggered $31 million of loans in the credit pool to default this week. The bad debt represents 80% of the credit pool’s outstanding loans. When Sherlock invested in the pool, however, Orthogonal’s borrowings only accounted for 14% of the pool’s loans.

In the post, Sherlock cited Orthogonal Trading’s outsized weight in the loan book as “one of the main reasons why the losses at Sherlock are so large.”

When FTX collapsed in early November, Sherlock wanted to withdraw funds from the Maple credit pool but couldn’t because Maple's 90-day lockup on new deposits had not ended, according to the firm.

Sherlock said it initiated removing funds at the end of November after the lockup expired, and was in the middle of the 10-day waiting period before reclaiming assets when Orthogonal Trading defaulted on Dec. 5.

Sherlock stakers would likely stomach a $3.75 million to $4 million loss, the platform predicted, as 20%-25% of the funds might be recoverable.

“Unfortunately, Sherlock is not in a financial position to compensate stakers for this loss if Sherlock wants to continue operations otherwise,” the statement said.

Losses for Sherlock’s stakers demonstrate the far-reaching tremors of crypto exchange giant FTX’s spectacular blowup. Orthogonal Trading, both borrower and credit pool manager on Maple, suffered losses because of assets stuck on FTX and defaulted on $36 million of debt. Maple also severed ties with Orthogonal for misrepresenting its financial woes for weeks.


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Krisztian  Sandor

Krisztian Sandor is a reporter on the U.S. markets team focusing on stablecoins and institutional investment. He holds BTC and ETH.