M11 Credit Update on loans to Orthogonal Trading

M11 Credit
3 min readDec 5, 2022

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M11 Credit issues default notice to Orthogonal Trading after misrepresenting financials

In light of the recent missed payment by Orthogonal Trading in the USDC Permissionless pool, we want to provide some insight and context on the situation. On Saturday, 3 December 2022, Orthogonal Trading informed us that due to funds held on FTX, they incurred much larger losses than previously disclosed and that these losses had resulted in their inability to repay loans and uphold their obligations as a borrower. We believe that Orthogonal Trading previously purposefully misstated their exposure and has therefore committed a serious breach of the Master Loan Agreement (MLA). Rather than cooperating with us and disclosing their exposure, they attempted to recover losses through further trading, ultimately losing significant capital.

We are extremely shocked and disappointed by the actions of Orthogonal Trading. Purposefully misstating information during the numerous contacts we have had over the last weeks severely impacted our ability to manage our outstanding credit risk for the benefit all stakeholders. We strongly condemn this behaviour, which does not align with how we do business, and from here on we will put all our efforts into recovering funds.

Timeline of events

Immediately after the collapse of FTX, M11 credit has intensified the collaboration with its borrowers to confirm their financial situation in order to protect the interest of the pool liquidity providers as much as possible. Following this and until Saturday 3 December Orthogonal Trading has severely misrepresented their financial standing to us, both in writing and verbally, by stating that they had limited exposure to FTX. Interest payments and principal payments were made to maintain the appearance of solvency, but the company’s insolvency was revealed when they failed to make a principal repayment due December 4th. This is when they revealed to us that the impact of FTX’s insolvency on Orthogonal Trading had been and continued to be very significant.

This is a breach of the Master Loan Agreement, which obligates Orthogonal Trading to accurately disclose their liabilities and financial situation. M11 Credit immediately issued a Notice of Default for all active loans. All appropriate legal avenues to recover funds for the benefit of the liquidity providers will be pursued including arbitration or litigation as necessary.

In order to improve the health of our loan book following FTX’s collapse, we took decisive action to restructure it and strongly encouraged borrowers to pay back loans to the pool early in order to protect the liquidity providers in the pool. Orthogonal Trading’s concentration was 14% of the USDC Permissionless pool and 18% of wETH Pool as of Sep 1, 2022, which was well within our established risk framework. However, as other loans were repaid and the issuance of new loans was greatly reduced, the share of Orthogonal Trading’s borrowings in the pool increased. As a consequence, our exposure to Orthogonal rose to become a significant majority of the remaining loan pool despite our continuous best efforts to manage the book accordingly.

M11 Credit and Maple are deeply disappointed about how the misbehaviour of others impacted the Pools the way it did and the current situation it created. We are committed to always upholding the terms of the Master Loan Agreement and protecting the interests of the liquidity providers. Next to this, we are weighing all options for legal recourse and M11 Credit will allocate its full Pool Cover towards recovering funds. As referred to in the statement issued by Maple Finance, fees and pool cover being derived from Orthogonal Credit pool will be also allocated towards further recovery for the benefit of the liquidity providers.

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M11 Credit

Bringing capital markets on-chain; we manage 3 liquidity pools (USDC and wETH) on Maple Finance. Lending to market neutral trading firms. Subsidiary of Maven 11