The UK-based crypto lender Nexo sent an open letter to its competitor Vauld’s creditors on December 26 with its final and amended proposal for Vauld’s acquisition.
For those that have no knowledge about the Nexo-Vauld deal, Nexo has been seeking to buy Vauld ever since the latter announced that it had suspended all activity on its platform, filed for creditor protection, and was looking at restructuring options earlier this year.
However, Nexo’s latest letter, which was sent on Monday with a slightly changed proposal compared to the one it shared earlier, shows a conflicting assessment of the acquisition process. In its letter, the crypto lender said that talks were continuing, and it still hoped to complete the purchase.
According to the document, Nexo presented a revised proposal on December 2. It pointed out that the negotiating team “faced daily challenges,” including “defamation,” “slow and incomprehensive financial and legal due diligence information,” and “the spread of misinformation on social media.”
The letter further alleged that Vauld’s financial advisor, Kroll, was the one who misrepresented and manipulated Nexo’s previous proposal when presented to Vauld’s creditors.
According to the letter, Nexo did not provide the deal terms presented to creditors at the October 2022 meeting. Instead, they were put together by Kroll without Nexo’s knowledge. The letter goes on to say that Kroll Singapore’s conduct raises questions about their objective of presenting possible restructuring scenarios.
“It appears that the administrator may be pushing a self-serving agenda that would involve a fund manager rather than presenting all options objectively,” Nexo added in its letter.
The letter, signed by Nexo Management and addressed to Vauld CEO and co-founder Darshan Bathija, co-founder Sanju Sony Kurian, its community, and Committee of Creditors (CoC) along with the creditors, stated that with this letter, the crypto lender intends to “create transparency to Vauld’s creditors,” and that it remains dedicated to offering them the most favorable recovery path forward.
Nexo further said in the statement that it is committed to working for the benefit of creditors and contributing to the development of the blockchain industry.
Not Coming to Fruition
Nexo’s letter comes just a day after the Singapore-based crypto lender Vauld said that the potential acquisition by the rival has been canceled.
Vauld said in an email to creditors that they have been in talks with Nexo about a potential acquisition, but “unfortunately,” they have “not come to fruition.”
The troubled crypto lender further said that Nexo hasn’t responded to Vauld’s due diligence requests to assess the rival’s solvency to assure its creditors. Another point of contention was that the proposal failed to offer Vauld creditors an early exit option, which the lender said was vital to a successful restructuring.
Talks, however, were still going on, of course, with Nexo assuring at the time, too, that it was not calling off the deal yet. Moreover, Nexo co-founder and managing partner Kalin Metodiev also maintained that they have “not given up on its attempt to save Vauld.”
Meanwhile, Vauld pointed to Nexo’s December 5 announcement in which it said it would phase out its US products and services in coming months for regulatory reasons.
After 18 months of trying to come to an agreement with US state and federal regulators, the dialogue “has come to a dead end,” said Nexo, which Vauld says would affect 40% of its US customers. Meanwhile, Nexo assures that they will continue to process US customer withdrawals.
A few months back in September, eight US state regulators from New York, California, Washington, South Carolina, Vermont, Kentucky, Maryland, and Oklahoma charged Nexo for alleged failure to register its Earn Interest Product. The regulators filed administrative actions against the company, saying its accounts would qualify as securities and should be registered as such.
“Since the SEC guidance on earn products in February 2022, Nexo has voluntarily ceased the onboarding of new US clients for our Earn Interest Product as well as stopped the product for new balances for existing clients,” Nexo said.
What Happened to Vauld?
Five months back, the two (Nexo & Vauld) entered an initial agreement to explore the deal after Vauld froze all customer withdrawals, deposits, and trading on its platform and hired advisers to explore a potential restructuring.
Incorporated in 2018, Vauld offers SIP options and higher interest on crypto holdings. The platform had more than 255 coins listed. And the project’s attractiveness could be gauged from the amount of funds it raised and its impressive profile of backers.
In July 2021, the company received $25 million in Series A funding from companies like Pantera Capital, Coinbase Ventures, Robert Leshner, CMT Digital, Gumi Cryptos, Cadenza Capital, and others. These funds were used to grow its asset under management (AUM) by 10x, user base by 40x, and staff by 5x.
The company generated large sums of interest income by lending crypto to other projects for arbitrage. And when the downtrend hit along with Luna’s collapse, Celsius pausing withdrawals, and Three Arrows Capital defaulting on their loans, this led to panic among the users, who started to withdraw their funds from various exchanges.
At the time, CEO Bathija said it was due to a combination of circumstances, including the volatile market conditions and the financial difficulties of its key business partners, that brought it to its current predicament.
As a result, the company laid off 30% of its staff, slashed its marketing budget, and trimmed its executive compensation, but nothing was enough to save the firm, which saw huge amounts of liquidation within a month.
However, the London-based Nexo came to Vaud’s aid by signing a term sheet for buying a 100% stake in Vauld, intending to use the acquisition to accelerate its presence in Asia.
Vauld also filed for creditor protection in Singapore in July, owing $402 million to creditors, 90% of which were from retail investor deposits, according to an affidavit.
Amid such difficulties, Vauld experienced another setback in August, as Indian authorities froze the company’s assets worth 3.7 billion rupees ($46.4 million).
Final Proposal
The crypto sector has been devastated by the collapse of entities like hedge fund 3AC and the latest FTX/Alameda empire. Moreover, major crypto lenders like Celsius, Voyager, and BlockFi have already filed for bankruptcy this year. And now, Vauld is on the verge of collapse pending Nexo’s deal. However, the Singapore-based crypto lending firm has been in a shaky boat for over a year now, with its future depending on Nexo’s proposed takeover deal.
However, to much display of Vauld’s users, the firm’s CEO Bathija noted in his most recent email that the company plans to go for the fund management option for its restructuring, with the potential Nexo deal falling through. He added that Vauld has even identified six potential candidates as fund managers and is in the process of finalizing one.
In its open letter on Monday, however, Nexo claims that the fund management option is not good for Vauld’s creditors. After all, under Nexo’s proposal of a fixed-income arrangement, it would be Nexo’s responsibility to generate loan revenue to pay the fixed interest it owes to Vauld’s creditors. And on the other hand, if Vauld goes with the fund management option, creditors would bear the entire risk of assigning their remaining assets to a fund manager and would also have to shell out fund management fees for their services.
“We cannot help but wonder why there is such an aggressive push toward the fund management option and what kind of ulterior motives could justify taking an alternative direction to the detriment of Vauld’s Creditors,” Nexo said in the letter.
Vauld’s CEO has come out with his version of events, saying that Nexo’s latest proposal differs from the one presented earlier this month, and despite that, Nexo still believes that creditors will accept this final proposal.
The final proposal bears a fundamental change in regard to key performance indicators, or KPIs, related to withdrawals. For instance, the prior proposal required a turnover of at least 2x the account balance or should have a $10,000 minimum trading turnover to withdraw funds. However, those KPIs have now been changed to a turnover of at least 5x the account balance and no minimum turnover in absolute terms.
These changes to the KPIs are made to “ensure a greater probability for Vauld’s customers to achieve the KPIs,” Nexo co-founder Antoni Trenchev told The Block.
Another notable change includes no minimum deposit size in absolute terms per the final proposal, which previously required swapping at least 20% of the total account balance into Nexo tokens and locking it in a fixed-term deposit involving a $1,000 minimum for at least a year.
Nexo co-founder Metodiev also said that whatever steps his firm is taking is for the betterment of the creditors, as their goal is to help the creditors recover maximum funds as much as possible.
Overall, it remains to be seen if this deal will go through, but Vauld only has less than a month, until January 20, to develop a restructuring plan to sort out its financial issues. Despite receiving another credit extension just last month, the lender has actually applied for yet another extension recently.
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