Singapore-based cryptocurrency exchange Hodlnaut has laid off 80% of its employees to reduce its expenditure. This is approximately 40 employees. Hodlnaut is among many crypto exchanges that are struggling with illiquidity which has pushed them to halt their withdrawals. The exchange has applied to be placed under judicial management currently. The cause of Hodlnaut's problem can be attributed to the TerraUSD crash that wiped out billions of dollars of wealth from the cryptocurrency market.
The free fall in TerraUSD and sister token Luna in May led to reportedly a whopping over $40 billion crash in the market impacting many investors, firms, and exchanges. The entire crypto market faced a frenzy selloff between May to June this year, and thus began the trend of cryptocurrency exchanges halting their withdrawals. Basically, the crypto exchanges were short of liquidity and by freezing wallets, they were halting more outflow from their system. But the chaos had already begun, and now finding the right solution to stay afloat is what could do good for them. Some crypto exchanges have opted for bankruptcy, while some are looking for investments and joint ventures. Also, some exchanges have laid off their staff to minimise expenditure, among which is also, Hodlnaut.
Hodlnaut Group's financial health went hay way after its Hong Kong subsidiary suffered heavy losses from the TerraUSD crash.
In its update on Friday, Hodlnaut said, "we have applied to be placed under judicial management in light of the Hodlnaut Group’s financial health."
It said, "Hodlnaut’s present financial circumstances are a result of losses suffered by Hodlnaut’s Hong Kong subsidiary during the TerraUSD crash, unusually high volumes of withdrawals, the overall decline in cryptocurrency prices from their 2021 highs and issues relating to certain users who have deposited substantial amounts of cryptocurrency with Hodlnaut."
Thereby, Hodlnaut said, "We believe that judicial management is the option which would most benefit our users now and in the long run."
By coming under judicial management, the crypto exchange said, "first, it would avoid liquidation of Hodlnaut’s holdings of BTC and ETH at today’s depressed prices (which have fallen greatly from their 2021 all-time highs)."
Also, in case of a liquidation, Hodlnaut said, "all assets of the company are sold first, and then distributed to our users equally in proportion to their holdings. What this would mean is that all users (whether you have deposited BTC, ETH, or stablecoins) would likely only get back a fraction of what was initially deposited."
Secondly, the judicial management brings in the opportunity for Hodlnaut to execute its recovery plan and rehabilitate the company.
"The plan is aimed at restoring our asset to debt ratio to at least 1 and eventually allowing users to withdraw the full value of their cryptocurrency deposited with Hodlnaut. If the Interim Judicial Manager, and subsequently the Judicial Manager, is appointed, he will step into the place of Hodlnaut’s management and make decisions on behalf and in the best interest of our users," Hodlnaut stated.
To allow users access to their funds, Hodlnaut said, "as such, we are also exploring the option of allowing users to withdraw their initial deposit, with interest accrued in full, at a discounted amount and close their account with Hodlnaut."
However, it also added, "as we are already applying for judicial management, this process will need to be reviewed and approved by the Judicial Manager in the event that he is appointed."
Talking about the road ahead, Hodlnaut said, they will be taking steps to reduce its burn rates. Therefore, they will be changing all open-term interest rates to 0% APR from 22 August, 5 pm (GMT+8).
Also, to reduce its expenditure, the exchange has reduced 80% of its staff.
"Since we halted withdrawals, we have also laid off 80% of our employees (being approximately 40 employees), in order to reduce the company’s expenditure. The current team that we have retained are, in our assessment, necessary headcount in order for us to carry out key functions," it added.
Hodlnaut's interim judicial management application will be heard in the Singapore Courts. The hearing is fixed for August 22. On success, an Interim Judicial Manager will be appointed by the Singapore Court.
Then the Interim Judicial Manager will step into the place of the Directors of Hodlnaut Pte Ltd and decide how the company should be run. Further, the judicial manager may then evaluate and propose a recovery plan to the company.