Orthogonal Trading is “Effectively Insolvent,” According to Maple Finance

Blockchain-based capital marketplace Maple Finance has cut ties with digital asset hedge fund Orthogonal Trading on allegations that the latter misrepresented its financial statements. 

Maple said assets within the Orthogonal credit pool remain secure and is expected to close without issue in Q1 2023.

The Truth About Orthogonal

In a blog post on Monday, M11 Credit claimed that Orthogonal misrepresented its financial position to the lending firm over the past four weeks. Rather than notify Maple of its true financial position, Orthogonal attempted to recover its losses through more trading, only to lose significant capital. 

Only on December 3rd did the company reveal that it would be unable to satisfy its loan payments. This included liabilities of $31 million for four loans in Maple’s USDC stablecoin pool – $10 million of which was due on December 4.

According to a statement from Maple, this means that Orthogonal has been operating while “effectively insolvent,” and will be unable to continue doing so without outside assistance. As such, Orthogonal Credit will no longer serve as one of Maple’s pool delegates. 

“Misrepresentation like this is in violation of Maple’s agreements and all appropriate legal avenues to recover funds will be pursued including arbitration or litigation as necessary,” said Maple. 

Orthogonal Trading had two independently operated business arms associated with Maple Finance, including its credit and trading teams. Maple clarified that Orthogonal Credit has continued to act with “integrity,” and is working out a solution.

As of September 1st, Orthogonal accounted for just 14% of borrows from the M11 Credit USDC pool, and 18% of its wETH pool. However, the size of Maple’s exposure to Orthogonal quickly rose to become a “significant majority” of the loan pool in the following months, as Maple slowed down its issuance of new loans, and old ones were paid off. 

Maple has promised to use all available Cash, as well as fees from its USDC pool, to help recover funds for its lenders over the coming months.

“Maple will not work with bad actors or with firms that misrepresent their financials or business operations,” said Maple. “We are shocked and disappointed in the behavior of others and this is not a representation of how we do business.” 

FTX Exposure

Like many firms over the past four weeks, Orthogonal’s financial troubles began with the collapse of FTX in early November. Though Maple reached out to its borrowers to confirm their financial positions immediately after the blowup, it claims Orthogonal initially stated that it had “limited exposure” to the exchange. 

It wouldn’t be the first to go down: despite efforts to stay active after the Terra meltdown in May, the added pressure of FTX’s bankruptcy has forced crypto lender BlockFi to follow suit. Further reports suggest that Genesis may also be nearing bankruptcy if it does not receive significant cash in a short amount of time. 

Much like Orthogonal, FTX CEO Sam Bankman-Fried previously claimed that assets at the exchange were “fine” and backed 1:1, only to freeze withdrawals the following day.