All cryptocurrency exchanges are receiving ED summonses. Following wazirX, ED has now frozen Vauld Platform’s bank accounts, payment gateway accounts, and cryptocurrency accounts, totalling Rs 370 crore. One of the fastest growing lending platforms to file for bankruptcy in a year, the decline and fall of vauld lending platform. The funds that were blocked belong to Flipvolt Crypto-currency exchange, which operates Vauld. The ED had searched many Yellow Tune Technologies Private Limited locations in Bangalore.
Some Chinese NBFCs without licences lend money via various applications. Many of these loan applications were halted when the criminal investigation began. Profits were then transferred by being converted into cryptocurrency and sent to an international cryptocurrency wallet. You can read the detailed modus Operandi here.
Many of these fintech applications have shut down their operations and transferred enormous revenues made utilising this operating method since the criminal inquiry officially began.
The ED discovered during a fund trail investigation that 23 entities, including the accused NBFCs and their fintech companies, deposited a sizable sum of money totalling Rs 370 crore into the INR wallets of Yellow Tune Technologies held with cryptocurrency exchange Flipvolt Technologies Private Limited.
According to a statement from the ED, “These sums were nothing more than the profits of crime resulting from predatory lending practises.” It claimed that cryptocurrency purchases were sent to several unidentified overseas cryptocurrency wallet addresses. Between August 8 and August 10.
“It was discovered that this shell company was established by Chinese nationals Alex and Kaidi (actual names unknown), with the active complicity of willing CAs/CSs, and that fictitious Directors’ bank accounts were formed.” The accused fintech companies allegedly avoided using traditional banking channels and were able to withdraw all of the fraud money with ease in the form of cryptocurrency assets thanks to Flipvolt’s allegedly lax KYC standards, loose regulatory control, and allowance of transfers to foreign wallets without any justification, declaration, or KYC. the ED noted.
After ED seize Vauld’s assets, the company shares its statement:
“It is unfortunate that despite extending our cooperation, the Enforcement Directorate (ED) has proceeded to pass a freezing order, pursuant to which crypto assets in the pool wallets of the company have been ordered to been frozen to the extent of approximately Rs 2,040 million. The freezing order is specific to that one customer that availed our services for a brief period of time, and whose account we subsequently deactivated. We respectfully disagree with the freezing order,” Vauld said in the statement.
The Decline and Fall of Vauld
Even before ED starts investigation this crypto exchange halted its deposit withdrawals and trading and also filed bankruptcy in Singapore. To know what happens we need to start from companies business.
Incorporated in 2018, Vauld is a platform for crypto financing that promotes long-term investment by giving consumers SIP alternatives and greater interest rates on their crypto assets. On its platform, more than 275 currencies are listed. Customers may purchase, lend, borrow, and trade crypto assets using Vauld’s one integrated platform. Users purchase more cryptocurrencies as their prices rise, and all cryptocurrency exchanges see a growth in both their client base and revenue. Customers of Vauld placed their money in cryptocurrencies, therefore this agreement benefits them as the price is rising and they will receive additional cryptocurrencies as interest.
From organisations including Valar Ventures, Pantera Capital, CMT Digital, Gumi Cryptos, Coinbase Ventures, Robert Leshner, Cadenza Capital, and others, the firm got a $25 million Series A financing in July 2021.
The vauld firm makes little money by brokerage when users buy and sell cryptocurrencies but the majority of money by charging significant interest on the crypto it lends to other ventures for arbitrage. This is equivalent to banks’ giving other people money. Additionally, the Vauld platform mainly relies on “yield farming,” which is usually an arbitrage between the cash market and the futures market. For instance, such platforms aim to profit from the fact that a certain crypto token has a large value in India relative to another nation on another exchange. This was done to increase the yield of the tokens that were lent.
In May 2022 When the price of the UST and Terra Luna (two of the top ten cryptocurrencies with a total market cap of $40 billion) dropped, it was because big holders of those coins decided to sell, which led to the sudden decrease in value. The wealth of many businesses that have a sizable stake or investment in that currency drops as a result of this price, and the price drop for the Luna coin was a shocking 96% decline rather than a 10–20% drop. Businesses and investors who have invested their money in Luna currencies are terrified about this happening.
The Lehman Brothers happened in 2008; the same happened when the Luna coin dropped in price. Due to the company’s delayed proactive actions, a sudden and significant net deficit of $70 million happened. Another thing was that the price of every cryptocurrency also fell sharply. All of these factors led to a significant wave of cryptocurrency withdrawals from their platform. This wave was equivalent to a month-long withdrawal from Vauld of $200 million.
Not only does Vauld face this issue but there are companies like vauld that also faces the same issue. The company called Celsius, which has a similar business to Vauld and has $8 billion in loans and $12 billion in assets under management, also stopped its platform’s withdrawal. Celcius had 200 million in exposure to Luna tokens. This company also filed for bankruptcy. Another company called Three Arrow Capital also got hit by the fall of the Terra ecosystem. Three Arrow Capital also filed for bankruptcy.
The Road Ahead
Vauld is already suffering from a liquidity crisis that caused it to stop accepting withdrawals on July 4 and suspend operations at the same time that the Ed inquiry was launched. The company announced on July 5 that it had signed an indicative contract to be acquired by London-based cryptocurrency lender Nexo.
I understand that a lot of our customers are nervous about your funds. We are working tirelessly to ensure your financials are protected. To that end, we’ve signed an indicative term sheet with @Nexo to acquire up to 100% of Vauld: https://t.co/HrnQO7J64f
— Darshan Bathija (@darshanbathija) July 5, 2022
Additionally, the business is involved in legal cases and issued demand letters and claims from creditors. Vauld had stated in July that its group company has assets worth around $330 million and liabilities totalling approximately $400 million a shortfall of $70 million. A three-month moratorium has been imposed on the corporation while it decides how to resolve the current financial issue and repay creditors.
Last but not least about Investors/Users
They promote their crypto platform through a variety of channels, including social influencers who encourage their followers to invest. It is estimated that the vauld platform has 800,000 investors, with approximately 75% coming from India. Giving the Nexo acquisition their blessing and hailing it as a relief for investors, such procedures take a long time, though, and call for careful due diligence and knowledge of the company’s present financial situation.
Investors need to keep in mind that FTX, which just purchased BlockFi, declined to save Celsius due to the company’s accounting irregularities.
Investors in cryptocurrencies have no regulatory options if there is no regulation of the industry.