DeFi Risk-Sharing Protocol Nexus Expects Loss on Maple Credit Pool Investment as FTX Contagion Widens

Insurance alternative Nexus Mutual is expecting to take a loss on its investment in a credit pool on Maple Finance, a large decentralized lending platform, according to a statement released Monday.

Nexus warned about a potential loss of 2,461 ether (ETH), some $3 million, from Orthogonal Trading’s recent default and said it started to withdraw all funds from the affected wrapped ether credit pool. This represents 1.6% of Nexus’ assets, according to the statement.

In August, Nexus deposited 15,463 ETH, worth some $19.3 million at current price, into a wrapped ether credit pool on Maple Finance following community voting. Nexus is a peer-to-peer, risk-sharing protocol offering an alternative to insurance against risks such as DAO hacks and smart contract bugs in decentralized finance (DeFi). It is governed by a community of NXM token holders.

However, more Nexus funds appear to be endangered. Orthogonal Trading’s defaulted debt on Maple’s wrapped ether credit pool amounts to some $5 million (3,900 wETH). On top of that, embattled market maker Auros Global failed to repay a $3.1 million (2,400 wETH) loan and has another $7.5 million (6,000 wETH) in active loans outstanding from the same pool.

The troubled debt represents 56% of the $27.8 million outstanding debt in the wETH credit pool, according to Maple’s credit dashboard. Only $3.1 million in cash deposits are not actively tied up in loans, which limits Nexus’ ability to withdraw funds. Maple has a 10-day waiting period before depositors can withdraw capital.

Nexus Mutual’s warning comes as contagion from the implosion of FTX, once one of the world’s largest crypto exchanges, spreads to DeFi lending protocols. Orthogonal Trading received a default notice for a total of $36 million loans on Maple after it allegedly misrepresented its losses from the FTX fallout to creditors. Auros Global said last week it is facing “short-term liquidity issues” and missed payment on a loan from Maple.