Orthogonal Trading Misses $10M Loan Payment

The dominoes continue to fall after FTX’s collapse.

Orthogonal Trading, a crypto trading firm, is said to be insolvent after it missed a loan payment of $10M on Maple Finance, a DeFi protocol that facilitates uncollateralized borrowing.

Maple and M11 Credit, which underwrote the loans, allege that Orthogonal Trading misrepresented its financial condition. According to a post from M11 Credit, Orthogonal Trading won’t be able to fulfill its obligations as a borrower because it held substantial assets on FTX, the now-bankrupt exchange.

“Legal action will be taken,” a representative of M11 Credit told The Defiant. The representative declined to go into further detail, but added that the firm plans to use all available avenues to recover the borrowed funds.

M11 Credit is a “Pool Delegate” on Maple Finance — Maple users deposit assets into pools managed by firms like M11 to earn yield as delegates lend those assets out.

Orthogonal Trading has borrowed from two M11-managed pools on Maple Finance. The firm owes $21M USDC, and 3,900 ETH, worth $4.9M as of Dec. 5.

M11 Credit also has $1.2M at risk in the event of a default on a loan, according to Maple’s interface. This capital is part of an effort to align the incentives of a pool’s delegate with its depositors, according to Maple’s wiki.

Unsecured Lenders Under Fire

The news comes after Auros, another trading firm, missed a payment on a 2,400 ETH loan taken out on Maple last week. Unsecured lending platforms looked shaky in the wake of the FTX implosion — with the Orthogonal Trading news, those early warning signs have turned into a string of insolvencies.

Nexus Mutual, a DeFi insurer that offers coverage against smart contract exploits and exchange failures, has taken a hit from its exposure to Orthogonal Trading — the project’s treasury is set to take a loss of about 2,461 ETH, worth $3.1M as of Dec. 5, according to a blog post. Nexus’ community voted to supply over 15,000 ETH to Maple’s M11 Credit-managed ETH pool earlier this year.

Sherlock, a project which offers coverage on smart contracts that it audits, is also on the hook for $3.75M, assuming a 20% to 25% recovery of the owed assets, as suggested by the project’s post on the shortfall.

The Defiant reached out to Orthogonal Credit at the email address provided in its blog post, but received an automated response saying the address couldn’t be found. Orthogonal Trading did not respond to a request for comment.

The Defiant asked the representative from M11 Credit why they thought Orthogonal Trading did not immediately alert its creditors that it had lost money due to FTX’s mismanagement of customer assets. “This is a question best answered by Orthogonal Trading,” the representative said. “But it probably was initially a function of not owning up/embarrassment for having a too large exposure on FTX.”

Regarding what can be done in terms of internal processes moving forward to prevent future defaults, M11’s representative wasn’t certain there were significant changes the company can make.

“We are reviewing this event from all angles to see what could [have] been done to prevent this but there are limitations [to] what you can do if the other side is not acting with the same integrity and responsibility,” they said.