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The On-Going Contagion Claims Yet Another!

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On June 16, 2022, an official from Vauld took to Twitter to assure it was processing requested withdrawals as usual and would continue to do so.

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However, in just the past few hours this July, 4, 2022, in a corporate statement, Vauld CEO, Darshan Bathija, announced:

... we have made the difficult decision to suspend all withdrawals, trading and deposits on the Vauld platform with immediate effect. We believe that this will help to facilitate our exploration of the suitability of potential restructuring options, together with our financial and legal advisors. We seek the understanding of customers of the Vauld platform that we will not be in a position to process any new or further requests or instructions in this regard. Specific arrangements will be made for customer deposits as may be necessary for certain customers to meet margin calls in connection with collateralised loans.

[Vauld. Corporate Statement. (Accessed July 4, 2022)].

"The about-face hints at the speed with which plunging prices are rippling through the sector, bringing firms ranging from Celsius to hedge fund Three Arrows Capital to their knees" [Shukla, S. Crypto Lender Vauld Freezes Withdrawals, Eyes Restructuring. (Accessed July 4, 2022)].

Bathija, in the corporate statement, set forth the company's reason for pursuing this course of action as follows:

The Vauld management wishes to inform that we are facing financial challenges despite our best efforts. This is due to a combination of circumstances such as the volatile market conditions, the financial difficulties of our key business partners inevitably affecting us, and the current market climate which has led to a significant amount of customer withdrawals in excess of a $197.7 m since 12 June 2022 when the decline of the cryptocurrency market was triggered by the collapse of Terraform Lab’s UST stablecoin, Celsius network pausing withdrawals, and Three Arrows Capital defaulting on their loans.

[Vauld, supra].

Vauld has hired advisers to explore a potential restructuring. They have engaged the services of financial advisor Kroll Pte Limited. Additionally as legal advisors, they have hired Cyril Amarchand Mangaldas in India and Rajah & Tann Singapore LLP in Singapore.

Additionally, Bathija, in the corporate statement, disclosed:

We are currently in discussions with potential investors into the Vauld group of companies. We intend to apply to the Singapore courts for a moratorium i.e. a suspension of the commencement or continuation of any proceedings against the relevant companies so as to give us breathing space to carry out the proposed restructuring exercise.

[Id].

Vauld, founded in 2018 by Darshan Bathija and Sanju Kurian, helped crypto investors earn and borrow crypto, including borrowing against your own assets and having no cap on daily withdrawals. Although headquartered in Singapore, Vauld's core market is India where exchanges and investors saw a massive setback after the government announced a 30 percent tax on gains from virtual digital assets (VDAs) including crypto, besides a 1 percent tax deduction at source (TDS). Volumes across exchanges dropped drastically in the past few months with daily traders wary of the TDS, worsened by the crash in crypto prices. Volumes are expected to drop further now that the TDS has come into effect on July 1. Investors are expected to have moved on to trading on decentralised exchanges or foreign exchanges in a bid to avoid the impact of the TDS and income tax. Meanwhile, what is also worrying the industry is the impending Bill that will regulate crypto trade and exchanges.

[Iyer, P. Coinbase-backed Vauld suspends crypto withdrawals, seeks new investors citing financial challenges. (Accessed July 4, 2022)].

"Vauld follows in the footsteps of large CeFi platforms such as Celsius, Voyager and BlockFi. Voyager explicitly blamed 3AC for their recent decision to freeze customers’ funds and BlockFi is close to a $240 million deal with FTX following financial difficulties, while plans to salvage Celsius from bankruptcy were recently shared by lead investor BnkToTheFuture" [Hall, J. Keys lost in the Vauld: Singapore crypto exchange freezes withdrawals. (Accessed July 4, 2022)].

This Vauld situation once again calls into question exchanges being the custodians of customer's crypto in the absence of protective regulation. "In effect, in 'lending' your cryptocurrency tokens to Vauld, you would generate a yield. However, the company effectively owns your assets" [Id]. As such, a key principle of cryptocurrency investing must be stressed: "If you do not hold your own keys, you do not own your coins" [Id].

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