Merge Price Swings Could Trigger Liquidations, Hodlnaut Warns

Beleaguered crypto lender Hodlnaut warned that a potential bout of volatility in the wake of Ethereum’s upcoming Merge upgrade could pose a risk to its assets.

A spike in the prices of Ethereum-based tokens and assets could unwittingly cause “smart contracts to automatically liquidate the assets,” the company said in a statement released on its blog.

Smart contracts, programs automatically executed when certain conditions are met, are the basis of blockchain-based decentralized finance applications, of which Ethereum is the dominant network.

Hodlnaut said that if prices swing drastically following the Merge, it could trigger liquidations for instance in protocols governing collateral.

The Singapore-based crypto lender said that one way to mitigate the risk would be to unwind tokens deployed on decentralized finance platforms, however it warned this could result in material losses.

In order to preserve the value of the assets, judicial managers have requested loss estimates of such an unwinding and any precautionary steps that can be taken.

Under judicial management

Hodlnaut has been under judicial management in Singapore since last month, after the lender had halted withdrawals. A Singapore court had placed the embattled crypto lender under judicial management, which granted it breathing space to be restructured.

The Singapore-based firm said the court had appointed Ee Meng Yen Angela and Aaron Loh Cheng Lee, of EY Corporate Advisors, as the interim judicial managers.

Hodlnaut, a crypto borrowing and lending platform, halted withdrawals, token swaps, and deposits for its users on Aug 8, citing adverse market conditions.

Since then, the platform has shed at least 40 employees, or roughly 80% of its staff.

Upcoming Merge

The long-anticipated Merge is expected to take place this week, around Sept 15. It will see Ethereum’s mainnet merge with the Beacon Chain, a proof of stake blockchain developed in Dec 2020 as the first part of the upgrade.

Not only will this make Ethereum more sustainable, co-found Vitalik Buterin also said that security in the long term was another motivating factor. In the meantime, investors are on edge about whether the unprecedented upgrade will be implemented without error.