Hodlnaut was a Singapore-based crypto lending and borrowing platform that advertised attractive rates for crypto deposits.
On March 15, 2022, Hodlnaut secured an In-Principle Approval for their Token Swap service from the Monetary Authority of Singapore (MAS) for a Major Payment Institution License.
Drawn by attractive interest rates on crypto deposits and purported MAS approval, depositors flocked to Hodlnaut, swelling its assets under management to almost US$1 billion, given its veneer of legitimacy and regulatory-license status.
By August 8 2022, Hodlnaut halted withdrawals, having lost nearly US$190 million in the TerraUSD failure.
At the time, Hodlnaut claimed it had no exposure to TerraUSD, however on-chain data showed not only was Hodlnaut exposed to TerraUSD via the Anchor Protocol, it had at one point almost all of its customers’ assets in the ultimately doomed yield-generating protocol.
Analysis of Hodlnaut’s USDC wallets on Ethereum also showed a pattern of regularly sweeping fresh customer deposits which ultimately ended in the Anchor Protocol.
- Regulators need appropriate tools to monitor licensed entities in real-time. By monitoring fund flows out of Hodlnaut’s wallets, the regulator would have found that Hodlnaut was moving investor funds to more risky protocols such as the Anchor Protocol and raised queries from an early stage.
- Crypto supervision need not be burdensome. By identifying key wallet addresses for automated surveillance, regulators could have been alerted in real- time to any anomalous transactions that warrant greater scrutiny.
- License issuance needs appropriate monitoring tools. By granting Hodlnaut an in-principle license under the Payment Services Act, MAS had afforded Hodlnaut legitimacy which may have encouraged more retail investors to deposit their crypto with the ultimately failed firm.