One of the biggest unsecured crypto lending protocols, Maple Finance, is currently going through a bad time. With a really bad debt to take care of, a system upgrade to attend to, and the drastic fall of the MPL token, one will say that Maple Finance has definitely seen better days.
Users who are depositors to the protocol are most definitely going to bear the brunt of the problem. This piece will narrate how the protocol got here and what is expected after this phase.
What Really Went Down With Maple Finance
Maple Finance was founded in May 2021 by Joe Flanagan and Sidney Powell, and with a different working design to other DeFi lending protocols, you do not need to over-collate your tokens to take out a loan.
In place of that, whether a user will be lent some tokens or not depends on the “creditworthiness” of such a user, which is usually determined after an evaluation.
However, recently, especially in the last two weeks, the Protocol has recorded a whopping number of defaulted loans to the tune of $36 million and another set of loans that are said to be distressed, which total about $18 million.
The protocol’s native token has fallen drastically to about half of its initial value. All of these signs signal a really bad period, maybe not to the management of the protocol, but the depositors of the protocol are definitely stewing from this phase.
According to Walter Teng, who is the vice president of Fundstrat, a market research firm, it appears that the greatest undoing of the Maple will have to be the sort of loans it runs. He criticises it and says that uncollateralized loans in the DeFi world are almost a myth.
It is still unclear what the future holds for the DeFi Protocol, but it is undoubtedly clear that the total loss amounts to tens of millions of dollars. While there are hopes of restructuring the loan, there is no doubt that lots of losses totaling tonnes of dollars will be suffered by the depositors.
While it is clear that Maple Finance itself might suffer little to no material loss, there is no doubt that it will suffer a reputational loss as its credibility will most likely be forever in question.
Yet Another “Victim” Of The FTX Collapse
Maple Finance might have been running a great risk with the way it operates and gives loans without borrowers needing to over-collate their loans, but it is no doubt clear that the protocol’s deplorable situation might not have deteriorated to this stage without the FTX factor.
As it is, a great deal of its users who are contributors to the protocol are currently nursing their losses from the fall. There is no doubt that it will take a while for the entire crypto industry to come out of this.
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