Breaking News: A Closer Look at the $20 Million Tokenized Credit
A distressed investment pool finds itself in the midst of turmoil as it grapples with a substantial $20 million (USDC) stablecoin loan provided to fintech credit fund Stratos back in February 2022. The loan agreement came with an 11% annual interest rate and had Warbler Labs as the borrowing entity. Recent developments reveal that approximately $7 million of this loan is now at risk of being lost.
The situation took a turn as Stratos allocated $5 million of these funds to REZI, a real estate technology company specializing in apartment rentals in major U.S. cities. Unfortunately, REZI has ceased making payments and is on the verge of liquidating its position. Another $2 million was earmarked for digital asset investments under the name POKT, an investment that Warbler Labs claims to have been unaware of. Stratos ultimately liquidated this position at a significant loss, and additional collateral had to be added to close it. Warbler Labs has pledged to cover all losses incurred by investors in the pool, with the exception of the positions held by Warbler Labs and Stratos.
Co-founders Michael Sall and Blake West expressed their views on the matter, stating, "This is, at best, a disappointment and an unforeseen situation." They added, "Warbler Labs is taking full responsibility for risk mitigation and recovery, committing to absorb the losses associated with REZI and POKT, except for the positions held by Warbler Labs and Stratos." The remaining $13 million from the loan was directed towards Threecolts, a thriving e-commerce marketplace management initiative.
The Perils of Tokenized Real-World Assets
This unexpected deterioration of the loan highlights the inherent risks associated with tokenized real-world assets (RWA), such as private loans. These RWAs have been a prominent trend in the cryptocurrency industry. This incident also underscores the importance of robust situation assessment processes in blockchain-based RWA lending protocols, especially in the wake of last year's defaults on loans extended to cryptocurrency trading firms.
This development follows a previous credit crisis in the Goldfinch pool, triggered by the default of a $5 million loan from Tugende, an African motorcycle taxi financing company, set to mature in October. Goldfinch management issued a statement indicating that the debtor breached loan contracts by extending intercompany loans to address a sister company's financial woes.
An anonymous user going by the name Wiz voiced concerns on the platform's management forum over the weekend, stating, "This marks the second instance of a borrower's lack of transparency or the inability to audit effectively within Goldfinch. While we acknowledge Warbler Labs' commitment to covering the loss, it is becoming increasingly worrisome to observe a complete lack of control exercised by the loan borrower, particularly considering Stratos' status as an equity investor in Goldfinch.
