Bloomberg spills into decentralization finance after hedge fund default

After a hedge fund is declared in default on almost 36 million loans, Bloomberg has spilled into the world of decentralization finance after it was declared in default on almost 36 million of loans due to the messy implosion of Sam Bankman- Fried.

Sydney-based Orthogonal Trading said in a tweet on Tuesday that it had been severely impacted by the collapse of FTX and associated trading activities, making it unable to repay a $10 million loan. That prompted the entity that runs the lending pool on DeFi protocol Maple to issue a notice of default for all of the fund's active borrowings.

The default is the latest example of hedge funds getting roiled by the sudden implosion of Sam Bankman- Fried's FTX in November. The FTX was a favorite trading venue for institutional investors, and several hedge funds have seen funds trapped on the venue after filing for bankruptcy. The FTX fallout has so far evaded the brunt of the decentralization of finance, where people can borrow, lend and trade cryptocurrencies without a central intermediary. The collapse of FTX and Bankman-Fried s trading house Alameda Research has hints that the widespread spread of the disease is spreading, according to Orthogonal Trading.

In the event of a default, loans on unsecured platforms like Maple don't require large pools of collateral, but instead rely on pool managers like M 11 to conduct due diligence on borrowers' financials. Maple said it several ties with Orthogonal Trading because it misrepresented its financial position to the lending pool, M 11 Credit, an allegation M 11 also leveled against the hedge fund.

According to Maple, Orthogonal Trading had $31 million of loans in the USDC stablecoin and another $4.9 million denominated in a token called Wrapped Ether. It now accounts for the majority of M 11 Credit's loans, up from 14% at the beginning of September.

Rather than cooperating with us and disclosing their exposure, they attempted to recover losses through further trading, ultimately losing significant capital, according to M 11 Credit, who was informed by Orthagonal Trading on December 3 about its inability to repay $10 million. Orthogonal Trading didn't respond to requests for comments.

Orthogonal Credit, a related party that it says it operates structurally separate from Orthogonal Trading, said in a blog post on Monday that it was shocked and dismayed by the event and was unaware of its sister entity's woes. Orthogonal Credit said we are speechless by the extent of the exposure and liquidity position of Orthogonal Trading's book of business.

According to the platform, Orthogonal Credit had roughly $850 million in loans over Maple. Fees generated from Orthogonal Credit's lending pool on Maple will be used to repay Orthogonal Trading's lenders before the expected closure of the pool in the first quarter of next year, Maple said.

According to its statement, Maple also cut all ties with Orthogonal Credit.

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