The Algorand Foundation, a not-for-profit organization that supports the development of the Algorand ecosystem, has deposited $35 million in the stablecoin USDC to Hodlnaut, the embattled Singapore-based crypto lender, according to a statement last Friday.
“As part of the Foundation's mission, from time to time, 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,” said the Foundation.
According to the not-for-profit organization, most of those investments were short-term locked deposits that “became unavailable following Hodlnaut's suspension of withdrawals.”
While the Algorand Foundation said that it's “pursuing all legal remedies to maximize asset recovery,” it also claims that “these funds were surplus to day-to-day requirements and represent less than 3% of the Foundation's assets.”
The Foundation added that it does not anticipate “operational or liquidity issues due to this action.”
Created by MIT professor Silvio Micali, the Algorand blockchain aims to solve the so-called “blockchain trilemma,” or the ability to simultaneously achieve scalability, security, and decentralization of the network.
Steven Kokinos, who served as the CEO of the Boston-based Algorand Inc., the company that oversees the development of the Algorand protocol, left his role in July this year to “pursue other interests.”
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 Hodlnaut meltdown
Hodlnaut has been operating since 2019, offering investors up to 7.25% interest on their holdings of cryptocurrencies like Bitcoin and Ethereum. The company suspended withdrawals, deposits, and token swaps on August 8, joining a list of several other crypto lenders affected by this year’s downturn in the crypto market.
Hodlnaut was granted judicial management by the Singapore High Courts last week, which gives it temporary protection from any legal claims. Prior to that, the company cut 80% of its staff, or about 40 people, to reduce expenditure.
Although the judicial management gives Hodlnaut some breathing space to recover from its financial struggles, the company recently warned that the impending transition of Ethereum to proof-of-stake (PoS) could result in volatility in crypto markets.
This, in turn, can cause “smart contracts to automatically liquidate the assets” the company holds on various decentralized finance (DeFi) platforms if the pricing oracles that power the underlying smart contracts give out "erroneous" prices.
According to Hodlnaut, “liquidation of the assets could potentially be triggered if a lower price is reported for assets which are deposited as collateral, a higher price on assets that are borrowed, or a combination of both.”
One possible way to avoid this is to “unwind the tokens deployed on the DeFi platforms,” although “this may result in material losses,” said the company.