Smart Contract auditing platform, Sherlock has predicted a $4 million loss for its stakers- a third of the capital in its staking pool. This predicted loss is because of the Orthogonal Trading FTX-induced loan defaults on the crypto lending protocol, Maple Finance.
As one of the contagion effects of the collapse of the once great FTX empire, Orthogonal has declared it will no longer be able to service the $10 million USDC stablecoin loan obtained through a credit pool managed by M11 Credit, an affiliate of Maple Finance.
Maple had revealed that Orthogonal had been operating while being insolvent and did not disclose its inability to service the debt. M11 Credit further disclosed that the inability of Orthogonal to service its loan was due to the funds held on FTX.
Sherlock has now revealed that it had deposited about $5 million USDC of its $12 million staking pool to Maple’s credit pool which is controlled by M11 Credit. The inability of Orthogonal to service its loan has triggered the default of loans worth about $13 million this week.
In the issued statement, Sherlock explained Orthogonal Trading’s outsized weight in M11 Credit’s loan record is one of the major factors why the losses incurred at Sherlock are so large.
Sherlock revealed that upon the collapse of FTX in November, it made attempts to withdraw its funds from Maple Credit pool but was unable to because Maple’s 90-day lockup on new deposits had not expired.
Sherlock disclosed that it made another attempt to withdraw its funds at the end of November after the lock-up time expired, but this was made futile as it was during the middle of the 10-day waiting period to reclaim assets Orthogonal Trading defaulted.
Hinting at the fate of stakers, Sherlock stated that “Unfortunately, Sherlock is not in a financial position to compensate stakers for this loss if Sherlock wants to continue operations otherwise.”
This would mean that stakers will most likely swallow a $3.75-4 million loss. However, Sherlock further predicted that 20-25% of the funds might be refundable.
The loss of funds by Sherlock stakers demonstrates one of the far-reaching effects of the collapse of FTX on those who do not have their funds stuck in it.
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