Vauld is Collapsing
The bear market has not been kind to centralized platforms like BlockFi and Celsius. These are centralized platforms that allow customers to deposit crypto assets into the platform to earn interest, among other features such as borrowing. Some have offered interest rates on certain cryptocurrencies upwards of 10% and it's starting to make sense as to how. One thing you can always count on... If you can't figure out where the yield comes from, you are the yield.
These platforms made some very degenerate moves with customer's funds in an attempt to keep paying out high yields... To draw in more capital... To lend to other platforms... The cycle seems absolutely insane, because customers are depositing funds into these platforms thinking they're safe. All the while their funds are being exposed to other risky yield generating platforms...
Vauld halted customer withdrawals on July 4th, due to volatile market conditions and other issues. Following the collapse of UST and 3 Arrows Capital, Vauld saw $198 million in customer withdrawals and their assets under management's value is currently only around $330 million. As you can imagine, it's going to be really hard to generate enough yield to pay out on the customer's remaining assets... Much less pay back the customers if the withdrawals exceed the held assets.
As you can see, they state the vague reasons that they halted withdrawals are right in the FAQ section on their website. Basically, they were gambling with customer's funds in risky platforms like Terra UST and other places to generate yield to pay customers, and taking profit off the top. The perfect pyramid scheme, if you ask me... Lol. Get people to deposit BTC and offer 6% APY, take that BTC they "loaned" you and deposit it to Terra UST to earn 20% APY...
This creates a loop where the only way for the platform to be sustainable is to keep attracting new investors. How do you attract new investors? Offer higher interest rates on their deposits, of course. It works until it doesn't. You have a ton of exposure to UST, and suddenly your millions of dollars is worth thousands... And you owe customers tons of money that you don't have. Not a great business model.
Nexo might swoop in to the rescue though, like FTX did with BlockFi. I mean, they even filed a moratorium so people won't sue them for some period of time. It's not looking good, and they probably don't want to file for bankruptcy so... This deal may save them.
Nexo is another similar platform, but it's been around a lot longer and has remained unphased by the turbulent market. Even Celsius took a hit, but I haven't heard much about Nexo in the news lately aside from this. I think if Nexo is able to acquire Vauld, customer's funds may be safe. The problem is, though, that Nexo is buying debt to customers so it has to be a great deal.
If the deal doesn't go through, the Vauld customers might as well say goodbye to their fudns that were in the platform. Unfortunately only time will tell what's going to happen, but it's looking likely that the acquisition will happen. Hopefully Nexo can save customers from this collapse, but we will have to wait and see.
This just goes to show... Use decentralized systems like Hive Savings. The major advantage is that Hive isn't gambling with your funds, it's just allowing you to earn 20% APR on your crypto. It's sustainable because that mechanism is baked into the platform since day 1. Content creation and curation on Hive generates that APR, not degenerate gambling.
Food for thought.
