Singaporean cryptocurrency lender and exchange Vauld suspended action on its platform on Monday, July 4 — including withdrawals, deposits, and trading. Founder and CEO Darshan Bathija launched the startup in 2018 and has since garnered backers like Coinbase. However, the ongoing crypto market downturn has put pressure on Vauld and, subsequently, its users.
The reality of a potential bankruptcy filing for Vauld could be very real, but it looks like rival Nexo will bail out Vauld with a buyout. The deal has yet to go through, but could save Vauld and get money in the hands of its users sooner rather than later.
Crypto lender Vauld halts withdrawals, hopes for Nexo buyout
Vauld is facing an excess of customer withdrawals on its crypto lending and exchange platform, reaching $197.7 million since June 12. This is due to the market downturn, which is prompting investors to recede from digital assets for risk management. Meanwhile, Vauld isn't able to honor these withdrawals. As such, the platform has halted all main actions, including withdrawals, deposits, and trades.
On July 4, Bathija stated through Vauld’s Twitter account, “Our management remains fully committed to working with our financial and legal advisors to the best of our abilities to explore and [analyze] all possible options, including potential restructuring options, that would best protect the interests of Vauld’s stakeholders. [...] In the meantime, we have made the difficult decision to suspend all withdrawals, trading, and deposits on the Vauld platform with immediate effect.”
Following the move, competitor Nexo has offered to acquire Vauld to prevent a total collapse and get money back in the hands of users. Bathija tweeted early on July 5, “The completion of this transaction is pending due diligence - which both teams are working on as we speak. Vauld has strived to deliver long-term value to all customers, and we believe coming under the @Nexo umbrella will significantly help achieve this.”
Vauld can avoid bankruptcy if Nexo buyout proceeds
Assuming Nexo does buy Vauld, the new parent company may be able to help inject enough capital into Vauld to cover all of their liabilities. Until then, the crypto lender and exchange will continue operating in a shortage.
Does Vauld have insurance and is it safe for users?
Vauld once boasted that its lending pool is insured for $100 million, but the company has since removed the page stating this information.
Let’s be clear: Crypto companies having a lack of capital to honor withdrawals isn't a result of “financial challenges” as Vauld calls them. Vauld’s predicament is a result of failing to maintain adequate liquidity amid strained margins. Crypto has been a highly volatile asset class since its inception and Vauld’s failure to pad its books and protect users proves a lack of interest in user wellbeing.
However egregious, this is a norm in many crypto startups. Celsius is in the same boat, and even Coinbase ran into trouble when investors discovered their assets could become a part of the company’s bankruptcy estate in the event of a liquidity crisis, with payouts prioritized for institutional creditors.
Because of this, there are risks to keeping your money in a crypto exchange, which exists in a regulatory gray area. A lack of FDIC insurance means your assets aren't protected, so you must watch the market carefully and protect your positions in a cold wallet when not using them.