Maple faces $36 million in malicious defaults. Are unsecured loans bogus?

Original title: Maple Faces $36m Malicious Default, Is unsecured loan a Sham?

原文作者： Azuma，odaily星球日报

On December 5th Maple Finance, the largest unsecured loan agreement on the current chain, announced that it would not be able to do so because of its partner   Orthogonal Trading  There is a material misrepresentation of its financial position which exposes the agreement to substantial risk of default and severs all cooperation with the company (including cancellation). A subsidiary of Orthogonal Trading. Orthogonal Credit as an agent) and pursue all appropriate legal avenues to recover the funds.

According to The Orthogonal Trading announcement, as well as a follow-up report from The Block, the company concealed the Orthogonal Trading's claims that it is insolvent. M11  Credit as an agent. USDC  WETH and Weth have borrowed about $36 million in combined funds and have continued to fall behind, resulting in Weth. Maple Finance agreements and all deposit users are exposed to the risk of significant losses.

The operating mechanism of Maple Finance

In explanation. Before we examine the Orthogonal Trading's impact, let's explain briefly. The operating mechanism of Maple Finance. Maple Finance's system cycle relies on four roles - depositor, insurer, borrower and agent.

It is well understood by depositors and insurers that the users who provide the pool with loanable funds, and the insurers who are responsible for the contingency of the pool and advance the losses, both of them can obtain the interest income of the loan through their respective actions. Token incentives released by Maple Finance. Here we need to focus on the latter two roles.

The borrower is a user with borrowing needs, in. All Maple Finance clients are institutional clients. Borrowers need to fill in the company information, loan purpose, repayment plan and other information before submitting the loan application, and the application will be submitted to the agent for review.

The agent is responsible for approving the loan. Maple Finance  Generally, they are professional credit institutions. The agent will review the borrower's financial status, credit quality, program rationality and so on to decide whether to issue the loan, and earn certain income through effective operation.

Note: In order to isolate risk, Maple Finance has a separate pool for each currency for which each agent is responsible.

Details of breach

From & have spent According to the Maple Finance agreement, there are three qualified agents in the Ethereum chain: M11  Credit, Orthogonal Trading (companies that act as agents are actually subsidiaries Orthogonal Credit), and Icebreaker Finance, among them:   The pools of Icebreaker Finance, which acted as the agent for the recent deal, have yet to make any loans. In other words, there are currently only agents active on Maple Finance. M11  Credit and Orthogonal Trading.

Now it's interesting to go back and look at defaults... Orthogonal Trading serves as an agent as well as as a borrower. Maple Finance applied to borrow, so the only remaining active agent was available. M11  Credit, this means that two agents on the agreement have gone wrong, a financial information falsification, a so-called professional credit agency did not see......

Afterwards, the parties involved have given different accounts through official channels.

M11  Credit says the main reason for this is that Orthogonal Trading has been deliberately inflating its financial statements. Specifically, there's a Orthogonal name. Although it has repeatedly promised to do so in November. M11  Credit means that it is indeed in. FTX  There was money trapped, but the actual losses were much bigger than the figures they gave. Since then, the company has not Orthogonal Trading. M11  Credit  Disclosing the risks instead tried to recoup the losses by trading further, and ended up losing a lot of money.

Orthogonal Credit also issued a response, saying that its parent company, the Orthogonal Credit, Orthogonal Trading does distort exposure, but it does. Orthogonal Credit has been operating independently and was unaware of the misrepresentations made by its parent company.

Loss scale and recovery plan

As noted above, the Orthogonal Trading defaults resulted in a combined loss of about $36 million, affecting the Orthogonal Trading company. M11Credit as agent for the USDC pool and WETH Pool. Of these, USDC defaults of about $31 million accounted for 80% of the total pool size. And the total insurance scale of the pool is only about $1.85 million, which is expected to have a serious impact on deposit users; WETH defaults of about $5 million account for about 17% of the pool's total size. While the pool's total coverage is only about $200,000, the impact is relatively small.

But there are also smaller borrowers at risk, such as nbsp; M11  Credit mentioned crypto trading companies a few days ago. Since Auros Global has been unable to repay 2,400 WETH due to FTX events, the potential losses of different pools remain somewhat variable.

As of the publication, many companies in the industry have disclosed the potential loss to users and the community.

DeFi  Nexus Mutual, an insurance platform, disclosed that it has a stake in   M11  Credit has funds in the WETH Pool as agent and has started the divestment process, but with a mandatory waiting period of 10 days, it is hoped that most of the funds will be recovered smoothly by then, but it is still expected to lose ETH 2461.

Sherlock, a smart contract audit platform, has also revealed that it is running its Sherlock business. M11  Credit has $5 million in the USDC pool as a proxy, or about $4 million in losses due to borrower defaults.

According to   Maple Finance and   M11  In the future, both parties will pursue all appropriate legal avenues to recover the funds, including arbitration or litigation if necessary, Credit said.

Maple Finance, meanwhile, says it expects to recover about $2.5 million. Eg. These funds mainly come from sources. Orthogonal Credit pools that act as proxies for lending, especially   Orthogonal Trading  The insurance funds provided at the inception of the pool and the agent income generated so far in operation.

Is unsecured lending a false proposition?

Credit loans and even unsecured loans have been seen as a potential solution to DeFi's inefficient use of funds.

However, due to the temporary lack of a relatively mature credit system and supporting payment system in the crypto world, the innovation in this direction has not been able to achieve scale. Among the many projects exploring the direction of credit lending, Maple Finance is already a rare representative of "top students" in terms of the scale of implementation.

This time, however, Orthogonal Trading has also been exposed. The design defect of Maple Finance is that when all borrowers and agents are able to perform their duties effectively, the protocol can indeed meet users' demand for more efficient use of funds. However, in case of malfeasance or even deliberate wrongdoing by one or both parties (in extreme cases, it may even act as a joint agent), the protocol still fails to show sufficient robustness.

Looking back at the breach, although you could say what if. The Orthogonal Trading has not orthogonal to end if it does. M11  Tougher scrutiny of Credit might have prevented this human disaster, but this human dependence is essentially the same as what DeFi advocates. code is law  There are contradictions. Investigate the reason, because   The credit scheme adopted by Maple Finance is still the credit investigation model in the traditional financial field, but it just moves this model to the chain and makes any breakthrough in the paradigm.

As DeFi believers, we are still looking forward to the crypto world in the future to be able to emerge a truly decentralized and distrusted credit program, but at present, it may be too early.

Like Maple Finance  Founder   Sid Powell later said: "I am shocked and disappointed by this incident and we will be applying more rigorous due diligence and considering the introduction of partial collateral."

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