Decentralized lending protocol TrueFi issued a notice of default on Wednesday to failed crypto hedge fund Invictus Capital after it missed repaying a $1 million loan.
Invictus took out a $1 million uncollateralized loan from TrueFi’s Binance USD (BUSD) credit pool, which was due to mature on Oct. 30, according to data on TrueFi’s loan dashboard. The borrower secured the loan with its good financial standing and reputation but didn’t pledge any assets against it, complicating the recovery of losses and restitution to those who invested in the credit pool.
TrueFi said it tapped its default protection fund designed to compensate affected investors, cutting 10% of the platform’s governance token TRU locked up in staking.
New World Holding, Invictus’ parent company, entered into a court-advised liquidation process on the Cayman Islands this summer after it became insolvent due to the implosion of the Terra blockchain and crypto lender Celsius Network’s bankruptcy.
Following the loan default, Archblock (formerly TrustToken), which manages relations between lenders and borrowers on TrueFi, will join the liquidation process in an attempt to reclaim assets. At the time, when TrueFi originated the loan to Invictus, Archblock was the sole underwriter of the loan.
This is the second loan default within a month on the TrueFi platform after Blockwater missed payment on a $3 million debt in October, CoinDesk reported. Rival lending platform Maple also encountered a default on a $10 million loan.
“Collections on the New World Holdings and Blockwater loans will be handled by Archblock’s special servicing team on behalf of TrueFi,” Diana Bushard, general counsel at Archblock, told CoinDesk. “Archblock has engaged local counsel in both matters and is actively pursuing asset recovery to minimize their impact on TrueFi lenders.”
Recent defaults on loans without collateral demonstrated the inherent fragility of uncollateralized lending based on trust, according to Walter Teng, vice president of digital assets at research firm Fundstrat.