TrueFi Blockwater Technologies Default

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TrueFi Website

South Korean blockchain investment firm Blockwater Technologies defaulted on a $3.4 million crypto loan from decentralized lending protocol TrueFi on October 6. Prior to default, TrueFi and Blockwater had restructured the loan and extended the payment period in August. Blockwater repaid $654,000 of the debt after restructuring, but subsequently missed a payment, leaving around $3 million unpaid. TrueFi is engaging in active discussions with Blockwater and is confident that the insolvency issue will not affect the protocol's other lending pools. The TrueFi credit group continues to renew loans and explore new sources of liquidity to ensure the protocol's strength and success.

This is a global/international case not involving a specific country.

About TrueFi

"To date, TrueFi has originated over $1.7 billion in unsecured loans and successfully collected approximately $1.5 billion in repayments across 136 loans, generating $34.34 million in interest for lenders."

BlockWater "missing a scheduled payment due on its amended 3,419,190 BUSD loan."

"To date, Blockwater has completed 8 payments totalling $645,405 towards loan repayment. $2,967,458 remains due at the time of the default."

About Blockwater Technologies

Blockwater Technologies is a hedge fund management firm founded in 2018, headquartered in Seocho, Seoul-t'ukpyolsi, South Korea. The company employs a strategy focused on thorough quantitative research and significant technological investment. Their approach involves advanced quantitative skills, relying on mathematical and statistical models, as well as strong trading infrastructure. Blockwater manages the Blockwater Capital Digital Asset Exposure Fund, which specializes in cryptocurrency investments.

BlockWater Management is a prominent digital asset investment firm with a focus on translating blockchain projects into real-world applications. Their investment portfolio is founded on the idea that the current disruption caused by cryptoeconomics and blockchain technology is just the beginning. With a deep industry background, BlockWater employs various investment strategies. They not only invest in the blockchain ecosystem but also offer consulting services to individuals and entities worldwide.

The Reality

This sections is included if a case involved deception or information that was unknown at the time. Examples include:

• When the service was actually started (if different than the "official story").
• Who actually ran a service and their own personal history.
• How the service was structured behind the scenes. (For example, there was no "trading bot".)
• Details of what audits reported and how vulnerabilities were missed during auditing.

What Happened

The specific events of the loss and how it came about. What actually happened to cause the loss and some of the events leading up to it.

South Korean blockchain investment firm Blockwater Technologies defaulted on a $3.4 million crypto loan from decentralized lending protocol TrueFi on Oct. 6.

Key Event Timeline - TrueFi Blockwater Technologies Default

Date	Event	Description
November 26th, 2020 2:19:56 PM MST	Blockwater Homepage First Online	The first time that the Blockwater homepage was captured on Internet Archive.
April 2021	Blockwater Joins Twitter	The Blockwater firm first sets up a Twitter account.
May 6th, 2022 1:11:07 AM MDT	Blockwater Homepage Goes Offline	The last time the Blockwater homepage was captured on Internet Archive.
August 8th, 2022 7:53:00 AM MDT	Loan Restructured	TrueFi announces restructuring of the $3.4mm loan, postponing the deadline. "As part of the negotiated amendment, Blockwater will have the loan maturity extended through October end with a weekly paydown schedule and an increased interest rate of 15%. To date, Blockwater has completed a good faith payment of $138k towards loan repayment."
August 8th, 2022 8:26:00 AM MDT	Further Details	TrueFi posts an update that "Blockwater will have the loan maturity extended through October end with a weekly paydown schedule and an increased interest rate of 15%" and that "Blockwater has completed a good faith payment of $138k towards loan repayment".
October 9th, 2022 2:03:39 PM MDT	Notice Of Default	TrueFi issues a notice of default to Blockwater Technologies for failing to make a scheduled payment on its amended 3,419,190 BUSD loan. TrueFi's credit group had attempted to work out a solution with Blockwater, including amending the loan terms, but found that a court-supervised administrative proceeding might yield a better outcome due to the complexity of the situation. This default, representing about 2% of TrueFi's Total Value Outstanding, is currently being restructured to maximize recovery for the affected BUSD lenders. The default does not impact other lending pools or capital market portfolios. TrueFi remains proactive with borrowers to ensure compliance in challenging market conditions.

Technical Details

This section includes specific detailed technical analysis of any security breaches which happened. What specific software vulnerabilities contributed to the problem and how were they exploited?

Loan Restructuring

The TrueFi loan was restructured in August.

As part of the negotiated amendment, Blockwater will have the loan maturity extended through October end with a weekly paydown schedule and an increased interest rate of 15%

Total Amount Lost

The total amount at risk has been estimated at $3,419,000 USD. The total amount lost has been estimated at $2,967,000 USD.

How much was lost and how was it calculated? If there are conflicting reports, which are accurate and where does the discrepancy lie?

Immediate Reactions

How did the various parties involved (firm, platform, management, and/or affected individual(s)) deal with the events? Were services shut down? Were announcements made? Were groups formed?

Blockwater's default is the latest example of the crypto industry's insolvency crisis as it follows the Terra ecosystem death spiral, the bankruptcy of multiple crypto firms, such as hedge fund Three Arrows Capital (3AC), crypto lender Celsius Network, digital asset broker Voyager Digital, and crypto-mining data center operator Compute North.

Blockwater's default came after TrueFi and Blockwater restructured the loan and extended the payment period in Aug. Blockwater managed to repay $654,000 of its outstanding debt after restructuring but eventually missed payment. The remaining debt amounts to almost $3 million.

TrueFi determined that "a potential court-supervised administrative proceeding would lead to a better outcome for stakeholders given the complexity around the sudden insolvency."

Roshan Dharia, head of lending at ArchBlock, which manages relationships between lenders and borrowers on the TrueFi protocol, said, "While we always prefer to pursue an out-of-court solution with distressed borrowers, in some instances an administrative proceeding is the best option in preserving value for stakeholders."

Blog Post About Default

TrueFi issues a notice of default to Blockwater Technologies for failing to make a scheduled payment on its amended 3,419,190 BUSD loan. TrueFi's credit group had attempted to work out a solution with Blockwater, including amending the loan terms, but found that a court-supervised administrative proceeding might yield a better outcome due to the complexity of the situation. This default, representing about 2% of TrueFi's Total Value Outstanding, is currently being restructured to maximize recovery for the affected BUSD lenders. The default does not impact other lending pools or capital market portfolios. TrueFi remains proactive with borrowers to ensure compliance in challenging market conditions.

"The TrueFi credit group led an exhaustive out-of-court workout with the principals of Blockwater, including a loan amendment to increase the borrowing rate and extend maturity, but ultimately determined a potential court-supervised administrative proceeding would lead to a better outcome for stakeholders given the complexity around the sudden insolvency."

Ultimate Outcome

What was the end result? Was any investigation done? Were any individuals prosecuted? Was there a lawsuit? Was any tracing done?

TrueFi remained in "active discussion" with Blockwater and reaffirmed that Blockwater's insolvency does not affect the protocol's other lending pools.

"TrueFi is pleased to announce the successful restructuring of the Blockwater $3.4mm loan

“The loan amendment extends maturity, results in higher yield for lenders and increases the probability of full repayment” - @RoshanDharia, @TrueFiDAO Head of Lending"

Total Amount Recovered

The total amount recovered is unknown.

What funds were recovered? What funds were reimbursed for those affected users?

Ongoing Developments

What parts of this case are still remaining to be concluded?

"The TrueFi credit group believes that the loan book continues to remain in strong standing and has been actively pursuing loan renewals given continuing borrower demand and support from major lenders."

"As TrueFi continues to pursue renewals with existing borrowers, vet and onboard new borrowers and portfolio managers, and tap new sources of liquidity in both DeFi (such as MakerDAO and FRAX) and traditional markets alike, we believe the protocol remains in a strong position to thrive."

Individual Prevention Policies

No specific policies for individual prevention have yet been identified in this case.

For the full list of how to protect your funds as an individual, check our Prevention Policies for Individuals guide.

Platform Prevention Policies

Policies for platforms to take to prevent this situation have not yet been selected in this case.

For the full list of how to protect your funds as a financial service, check our Prevention Policies for Platforms guide.

Regulatory Prevention Policies

No specific regulatory policies have yet been identified in this case.

For the full list of regulatory policies that can prevent loss, check our Prevention Policies for Regulators guide.