Hodlnaut may have had $187m exposure to Terra collapse

Over US$187 million in TerraUSD (UST) held by Hodlnaut, a crypto lender approved by the Monetary Authority of Singapore (MAS) in March, may have been exposed to the collapse of the Terra blockchain protocol in May.

UST, Terra’s algorithmic stablecoin that had a market cap of over US$18 billion two months ago, depegged from the US dollar on May 10 and lost over 90% of its value by May 13.

An on-chain analysis by industry insiders and confirmed by Tech in Asia found that two wallets, linked to Hodlnaut by crypto intelligence firm Nansen, had been used to move large amounts of UST into Terra’s Anchor protocol starting on January 21. By May 9, the amount reached 237 million UST (valued at US$237 million), although 50 million tokens were removed later that day. This meant that US$187 million worth of UST was still in the Anchor protocol when the stablecoin began to crash.

Hodlnaut, which at one point was managing close to US$1 billion in assets, denies any illegal activity. Its CEO, Juntao Zhu, said the lender did not take losses on Terra’s UST, though users who held the coin did. He also tweeted on June 21 that “Hodlnaut did not purchase any UST.”

Zhu indicated that the wallets in question were controlled not by his company but by “counterparties.” But he said in a tweet on June 21 that he could not share details because of non-disclosure agreements.

The tweet does seem to indicate that counterparties were exposed to UST, although Zhu added that “on-chain positions by our counterparties does not mean an exposure of the asset.”

In response to rumors, a Hodlnaut moderator on the firm’s Discord server apparently sent and later deleted a message saying that the company had zero exposure to the Anchor protocol. Another official response asserted that Hodlnaut does not use its clients’ USDC, USDT, or Dai stablecoins to invest in Anchor.

The Anchor protocol is a staking protocol for UST that offers a 19.5% annual percentage yield (APY). Hodlnaut rolled out staking services for UST in April with rates of up to 14%.

Questioning the nature of Hodlnaut’s revenue

The company had asserted that it was generating yields in kind from major stablecoins. While it’s not explained, this may mean, for example, that the company generates USDC yields only in USDC.

However, a conversation posted by FatManTerra – a popular but anonymous crypto insider who regularly writes about business dealings in the cryptoverse – that is believed to be between himself and Zhu contradicts this.

In the exchange, Zhu blamed the confusion about the yields on an “oversight” by the company’s marketing team. He then said that Hodlnaut’s yields “are almost never generated in kind,” and that when “yields are not generated in kind, that does not equate to degenerate gambling.”

Simmering doubts

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Taking loans while Terra burns

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