DeFi Lender Maple Finance Cuts Off Orthogonal Trading for 'Misrepresenting Its Financial Position'

DeFiDeFi lending platform Maple Finance has cut ties with crypto firm Orthogonal Trading after the latter allegedly misrepresented "its financial position."

M11 Credit, a Maple Finance pool delegate, issued a default notice to Orthogonal Trading yesterday, claiming that the company has $31 million in outstanding liabilities in the M11 USDC pool and is unable to repay those debts. It also has another $5 million in liabilities in the M11 Wrapped Ethereum pool.

M11 Credit uses Maple Finance's services to issue loans to interested parties. Maple Finance isn't involved in the lending process except for providing technical services. The platform's CEO Sidney Powell compared the service to Shopify, but for lending, previously telling Decrypt that it gives firms "the tooling to run a lending business online."

At the time, Powell explained that the "lending business is really the delegate." Delegates perform two services: They fund the pool with capital and conduct due diligence on any interested borrowers. Put another way, Orthogonal Trading is borrowing from M11, a firm that has built a lending business using Maple Finance.

In this case, however, Maple has stepped in due to what it suspects to be a misrepresentation of Orthogonal Trading's financial status.

"It is now clear that they [Orthogonal Trading] have been operating while effectively insolvent, and it will not be possible for them to continue operating a trading business without outside investment," reads today's note from Maple. "Misrepresentation like this is in violation of Maple’s agreements, and all appropriate legal avenues to recover funds will be pursued, including arbitration or litigation as necessary."

Missing payments or defaulting outright is not uncommon, especially these days in crypto; what is unusual, however, is that M11 and Maple both allege that Orthogonal misrepresented the extent of its liabilities. Orthogonal Trading only revealed it had limited exposure to FTX, according to M11, but it wasn't until this weekend that the trading firm informed M11 and Maple Finance that its losses were much larger than previously disclosed.

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"We believe that Orthogonal Trading previously purposefully misstated their exposure and has therefore committed a serious breach of the Master Loan Agreement (MLA)," M11 stated in a blog post. "Rather than cooperating with us and disclosing their exposure, they attempted to recover losses through further trading, ultimately losing significant capital."

Orthogonal Trading, Maple Finance, and M11 Credit did not immediately respond to Decrypt's request for comment.

Sister firm, Orthogonal Credit, issued a statement today to say that it "had no knowledge of the misrepresentation" and that it "has no insight to or influence over" the trading business.