Algorand Foundation outlines $35M exposure to crypto lender Hodlnaut

The Algorand Foundation has revealed a $35 million USDC hole in its balance sheet as a result of exposure to embattled cryptocurrency lending firm Hodlnaut, which has paused withdraws since Aug. 8. 

Algorand is an institutional-grade blockchain infrastructure with embedded smart contract functionality. The Algorand Foundation is a not-for-profit community organization focused on developing the Algorand ecosystem.

The announcement was made on the Algorand Foundation website on Sept. 9, with the Foundation stating that it’s “pursuing all legal remedies to maximize asset recovery.”

Hodlnaut’s financial situation first fell into deep waters when its $300 million investment into TerraUSD (UST) on the Anchor protocol fell dramatically following the de-pegging of UST and collapse of the LUNA token, resulting in the crypto lending firm pausing withdrawals and halting all trading activity, citing a liquidity crisis.

Weeks later, the firm was placed under interim judicial management, a form of creditor protection program, by the Singapore court.

Today we informed the community about our USDC exposure to Hodlnaut after they suspended withdrawals from their platform on August 8, 2022.

The full details can be found here: https://t.co/4pLkSiKW7b

— Algorand Foundation (@AlgoFoundation) September 9, 2022

The Algorand Foundation said the majority of the investment locked on the platform consisted of “locked, short term deposits,” but are now inaccessible due to Holdnaut’s suspension of withdrawals.

However, the Algorand Foundation notes that the $35 million represents less than 3% of the Foundation’s assets and they “do not anticipate [any arising] operational or liquidity issues,” and added that the “funds were a surplus to day-to-day requirements”:

“We invest a portion of our surplus treasury capital to generate yield for the purpose of Algorand ecosystem development, and these funds were invested for that purpose.”

Embattled crypto lender Hodlnaut is now subject to an Interim Judicial Management to resolve its liquidity issues.

Related: 3AC: A $10B hedge fund gone bust with founders on the run

Under Singaporean jurisdiction, corporate entities are placed under Interim Judicial Management for debt restructuring purposes in order to preserve and protect assets at risk prior to onset of legal proceedings.

The Algorand Foundation has played a key role, noting that on Aug. 29, the Singapore High Court appointed the Foundation’s nominees Angela Ee along with Aaron Loh of EY Corporate Advisors to act as the Interim Judicial Managers for Hodlnaut, aimed at preserving Hodlnaut’s asset until further court action begins.