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Centralized Risks! Cryptocurrency lending platform Cred voluntarily files for bankruptcy protection, debts may reach up to $500 million.

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Centralized Risks! Cryptocurrency lending platform Cred voluntarily files for bankruptcy protection, debts may reach up to $500 million.

The cryptocurrency lending platform Cred, which recently announced its participation in the Visa accelerator program, has voluntarily filed for bankruptcy protection. Cred accuses its former Chief Capital Officer of misappropriating funds. Meanwhile, former partner Uphold, announced a lawsuit against Cred, its affiliates, and the company's founder the day after Cred declared bankruptcy.

Cred Files for Bankruptcy Protection

Cred, a cryptocurrency lending platform that previously participated in the Visa accelerator program and served customers in over 100 countries/regions, announced the suspension of deposits and withdrawals on October 28. The official statement on Twitter at that time was:

"We want to clarify that Cred is not under investigation by authorities. Instead, Cred proactively sought assistance from law enforcement to investigate fraudulent activities involving the handling of funds of a specific company."

https://twitter.com/ihaveCred/status/1322294902940602368

Two weeks later, on the following Saturday, Cred voluntarily filed for bankruptcy in Delaware, USA. According to legal documents, the company's assets are estimated to be around $50 million to $100 million post-liquidation, but its liabilities are estimated to be between $100 million and $500 million, with an estimated number of creditors ranging from 5,001 to 10,000. Among them, only the top 30 unsecured creditors of Cred (non-insiders) have claims totaling $68 million.

According to Bloomberg'sreport, the reason for the company's bankruptcy filing was due to an alleged fraud by former capital manager James Alexander in March this year. He is accused of controlling a department of the company, absconding with $3 million worth of Bitcoin intended for adjusting the company's hedging strategies. Cred subsequently sued James Alexander in a California court, but James Alexander denies the company's allegations, and the lawsuit is ongoing.

Former Partners Plan to Sue

The day after Cred announced bankruptcy, cryptocurrency wallet service provider Uphold terminated its partnership with Cred and decided to sue them for breach of contract and damage to business reputation, according to theirofficial statement:

"In violation of the contract and fiduciary duty, Cred failed to contact Uphold on Friday, October 23, until a reporter investigated potential issues with Cred that day. As a result, Uphold today announces it will sue Cred LLC, the company entity, its affiliates, and the founders for fraud, breach of contract, and damage to business reputation."

Uphold stated that any proceeds from the lawsuit would be distributed to Uphold customers affected by Cred's losses, with Uphold bearing the cost of the litigation.

Community Perspectives

Although this incident has not received much attention in Taiwan, Cred is a company that is well-known alongside centralized lending platforms like BlockFi, Nexo, Celsius, and has many users overseas. Therefore, this event has naturally become a key topic of concern in overseas markets. Many community members have expressed their views on this event on Twitter.

FTX founder Sam Bankman-Fried expressed doubts about Cred's accusations against James Alexander, citing that while they claim he absconded with $3 million worth of Bitcoin, the company's debt ranges from $1 to $5 billion, indicating possible hidden factors in the debt structure of Cred.

Renowned figure in the DeFi community, DegenSparten, also mentioned that CeDeFi may offer higher returns but comes with high risks. He urged investors to plan their portfolios rationally and allocate accordingly based on risks.