Crypto Lending Platform Maple Finance Unveils Major Overhaul, Stops Lending on Solana

The improvements attempt to solve Maple’s design shortcomings highlighted during a recent debt crisis, but they may reduce incentives for holding the protocol’s native MPL token in its new form, an analyst said.

AccessTimeIconDec 14, 2022 at 7:14 p.m. UTC
Updated Jan 23, 2023 at 8:35 p.m. UTC
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Blockchain-based lending platform Maple Finance unveiled Wednesday a major protocol overhaul in an attempt to improve on shortcomings highlighted by a spate of recent loan defaults.

Maple is a credit marketplace where institutional borrowers can take out undercollateralized loans from credit pools and investors can provide liquidity to earn a yield on deposits. Each credit pool has a delegate, a financial firm that underwrites the loans and runs due diligence on borrowers.

According to Maple’s blog post, the upgraded version, called Maple 2.0, includes improvements on the withdrawal request process, introducing an option to schedule and prorate withdrawals.

It also eliminates the lockup period on new deposits, which previously led to smart contract auditing platform Sherlock losing $4 million.

MPL is up 6.9% in the past 24 hours on the news, per data by price tracking site CoinGecko, outperforming the wider crypto markets. The CoinDesk Market Index (CMI) is up 1.15%.

The new version features an overhauled protection mechanism called “first-loss capital” for lenders, which ostensibly absorbs some losses when a loan defaults. Now, only pool delegates provide funds to the default protection and can only be denominated in the same asset as are in the credit pool.

This move essentially eliminated staking MPL, Maple’s governance token, in the default protection fund, which was a popular yield-earning strategy for some investors.

In a previous iteration, assets in the default protection fund were a combination of USDC stablecoin and MPL tokens, and investors could stake their MPL tokens to earn rewards for contributing to the first-loss capital. In practice, stakers withdrew and dumped MPL when a default was looming, resulting in depleted funds to absorb losses.

Maple Finance’s protocol overhaul includes improvements on withdrawals and its default protection system. (Maple)
Maple Finance’s protocol overhaul includes improvements on withdrawals and its default protection system. (Maple)

“Good design updates,” Walter Teng, vice president of digital assets for research firm Fundstrat, told CoinDesk in a Telegram chat.

However, eliminating MPL from the pool cover and halting staking may seriously reduce utility of the protocol’s native token, he added.

Over the past month, MPL token’s price plummeted 52%.

MPL staking rewards have been halted “due to subdued revenues, volatile market and the need to strengthen Maple fundamentals,” according to a spokesperson’s post on Maple’s Discord server.

The upgrade attempts to patch Maple’s protocol design flaws as it is grappling with its largest debt crisis in its 18-month history. The protocol accrued $54 million of distressed debt in the last two weeks as two of its borrowers, Auros Global and Orthogonal Trading became insolvent due to the implosion of FTX, the recently arrested Sam Bankman-Fried’s crypto exchange. Maple liquidity providers now face steep losses on their deposits while MPL fell to an all-time low.

Major blow to Solana

Along with the upgrade, Maple made a "strategic decision" to double down on using the Ethereum blockchain and discontinue lending on the Solana blockchain, according to a blog post.

"By making improvements to the Maple Ethereum app as well as Ethereum’s move to [proof-of-stake], we are confident that frictions on Ethereum will no longer be prohibitive to current and prospective users of the Maple protocol," Maple said.

Maple introduced lending on the Solana blockchain in April with ambitious plans to grow credit pools to $300 million by the end of 2022.

The move represents a symbolic blow to Solana's reputation as a challenger blockchain to Ethereum after the FTX blowup. Alameda Research and FTX, flagship firms of Bankman-Fried's crypto empire, were significant investors in the Solana ecosystem.


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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.

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