Crypto lender Cred blames its collapse on the Uphold crypto exchange but the recent meltdown is not the first time that the risks of centralized DeFi products were laid bare so let’s read more today in our latest cryptocurrency news.
The liquidation trust for the Crypto lender Cred surged Uphold alleging that the crypto exchange was behind the product which caused the lender to seek bankruptcy protection. The product CredEarn offered retail investors high yields and until the investments, it made with the depositors, money soured. Although not as high profile, the bankruptcy case holds a number of parallels to the ones of Celsius and Voyager which both filed for chapter 11 bankruptcy protection this month. The drama around Cred’s bankruptcy might provide insight into how the recent cases can play out.
The Cred case is a reminder that the centralized financial intermediaries have for years drawn investors into the decentralized world of crypto through flashy marketing and high promised interest rates. The past few months are not the first time that the risks of what one might call CeDefi were laid bare for the consumers to see. Cred’s liquidators are seeking $783 million in damages in the case filed in the US Bankruptcy Court for the District of Delaware.
According to the liquidation trust of Cred, both of them alongside Uphold created and promoted Cred Earn but Cred loaned out more than $100 million in customer deposits before dropping In 2020. at the crypto market’s peak, these crypto investmetns were funneled to the lender via the Uphold exchange and were worth up to $700 million. The suit alleged that Uphold drove thousands of retail customers to lend crypto to the CredEarn program by marketing it as safe and secured but also fully hedged.
The Cred Liquidation Trust pointed out that the founder Dan Schatt was a member of Uphold’s board of Directors and also claimed that CredEarn was at one time supposed to be called UpholdEarn. The lawsuit reads:
“Uphold knew that Cred was implementing a highly-risky hedging strategy and that there was regulatory risk associated with cryptocurrency yield earning programs. Rather than take on all of these risks, Uphold and Schatt decided to shift the risks away from Uphold by running [‘Earn’] through Cred.”
Uphold disputed the claims made in the lawsuit and insisted that Cred was owned and operated independently and said it was unaware of the financial troubles when it promoted the product to the customers. The Cred saga shared similarities with Voyager as well which also filed for bankruptcy.
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