Key Takeaways:
- Hodlnaut warned that price spikes due to the upcoming Ethereum merge might risk its assets.
- The firm is in financial trouble in the aftermath of the TerraUSD collapse.
- Meanwhile, Algorand has revealed $35 million exposure to Hodlnaut.
NEW DELHI (CoinChapter.com) — Troubled cryptocurrency lender Hodlnaut is wary that a price rally resulting from Ethereum’s upcoming Merge might risk its assets.
Ethereum merge scares people
In a circular to creditors, Hodlnaut shared its worries that sharp moves in the prices of Ethereum-linked tokens could lead to liquidations in many smart contracts.
The firm pointed out that volatility would risk the digital tokens its customers deposited with the Hodlnaut. Liquidations of assets deposited as collateral will begin if the prices fall, while borrowed assets face liquidation risks if prices go higher.
In detail, smart contracts automatically execute when certain conditions are fulfilled. Hence, price swings might trigger liquidations as prices meet the pre-set conditions of smart contracts.
The lending platform’s troubles started during the collapse of the Terra-LUNA ecosystem. Hodlnaut’s $300 million investment into TerraUSD (UST) nosedived following the stablecoin’s de-pegging earlier this year.
Related: Hodlnaut seeks creditor protection in Singapore.
The dramatic fall in the firm’s investment led to Hodlnaut having a liquidity crisis. Afterward, the Singapore court placed Hodlnaut under interim judicial management to protect creditors’ interests.
The firm devised a solution to mitigate risks to its assets, suggesting an unwind of the assets. However, unwinding might lead to “material losses,” Hodlnaut said in the circular. In detail, unwinding refers to closing out a trading position.
Algorand Revealed Exposure To Hodlnaut
Meanwhile, the Algorand Foundation shared that it has exposure to beleaguered crypto lender Hodlnaut to $35 million. Algorand, a blockchain platform with smart contract functionality, shared the update on its website.
Algorand shared that most of its investments are locked in short-term deposits, which became inaccessible after Hodlnaut froze withdrawals in Aug. The platform stated it is working to recover the funds.
The Foundation is pursuing all legal remedies to maximize asset recovery and will continue to do so.
Algorand said in its announcement
The firm noted that $35 million is not significant, representing less than 3% of its assets. Therefore, Algorand assured users that the firm did not foresee any operational issues in its near future.
If the Merge leads to asset prices fluctuating, Hodlnaut’s troubles might multiply.
Not just Hodlnaut, the Merge would affect Ethereum miners as well. Read here to know how.
