Elon Musk likes to say that starting a company is chewing glass and staring into the abyss. Most crypto founders probably had no idea what he was talking about until Q2 rolled around. Luna’s unravelling in May was a blow to lending markets and served as a preview of the contagion fears that swept markets a month later. Luna’s collapse was a bookend on the era of yield farming that serves as a reminder that yield is always paid to compensate for bearing some kind of risk.
Maple’s Pool Delegates canvassed their Borrowers and found that Luna did not have a noticeable impact. Maple’s Borrowers are mainly market-makers and high frequency traders who did not participate in the Anchor carry trade, which was mostly followed by hedge funds (registered and unregistered), VCs with a Luna ecosystem focus, and retail. The effect we did observe was elevated withdrawal requests for a week but less than 30% actually opted to withdraw.
Luna’s collapse coincided with crypto asset prices falling, which escalated withdrawals from large CeFi lenders. This chain of events culminated in 3AC declaring insolvency, and Celsius, Voyager and other CeFi lenders filing for bankruptcy protections. Fears of contagion impacted Maple on the supply side - Pool Delegates stopped originating loans so that depositors could withdraw funds when loans were repaid.
Maple’s team and partners rallied together. The immediate focus was to avoid getting too defensive in comms, the first mistake teams make is trying too hard to project a rosy exterior. The second mistake is not saying enough in the hopes of staying out of the news cycle. Maple copped a couple of cracking headlines that (almost) painted Maple as being systemically important in crypto lending, flattering, but we still have a way to go yet. We made a fairly concerted effort of trying to re-establish control of the narrative through podcast appearances, regular social media updates and detailed reports by the Delegates on loan book health. The team did an amazing job of covering Intercom around the clock over nights and weekends.
Loans originated on Maple outperformed every major CeFi lender over Q2, who collectively wrote off $2 billion in losses. On $755 million in loans outstanding at the end of June, there was a single default of $10 million by Babel (~1.3% of the book). This is also on cumulative originations of $1.5 billion (~0.7%) since launch in May 2021. Maple’s Pools are not commingled so credit losses in one are quarantined and do not impact other pools. Legal discussions regarding the default are ongoing and any recoveries will be repaid to depositors who were lending at the time of liquidation.
Case for blockchain enabled lending stronger than ever
The diverging fortunes of CeFi vs DeFi lending were juxtaposed as June drew to a close. The advantages of on-chain lending have never been more clear:
Transparent on-chain flow of funds: loans are visible for all depositors to see. It is not an opaque black box - the borrowers are clear and known and the yield is generated by institutional lending, not yield farming and not the GBTC trade.
Smart contracts cannot freeze withdrawals and don't have bias in who can or cannot withdraw.
Cash and cover reserves are visible on chain.
But the workings weren’t perfect. We received thoughtful feedback, sometimes delivered with an abundance of CAPITAL LETTERS to make sure it was received loud and clear. We take it seriously and have been redesigning Maple 2.0 to hit the big pain points. Withdrawals need to be pro-rata so that there’s not a reason to rush for the exits first. Pool Cover is going to be a single asset (vs an LP token) so that liquidations return the maximum amount to lenders. The team is redesigning the user experience of withdrawals now to give more clarity on upcoming repayments when liquidity will be available (a consistent pain point).
Strong momentum Maple Solana
Maple launched two pools on Maple Solana in Q2, with X-Margin and Genesis Trading and reached $113 million in volume within 2 months. With Maple operating on two L1 chains, we think hard about how to differentiate the product offering on each chain to avoid just cloning the product and cannibalizing the audience. We were understandably excited to see Solana Labs launch a phone to carve out a niche for itself and bring a larger audience into crypto.
Investments in the team to build Maple 2.0
In Q3, the engineering team’s attention is turning to Maple 2.0. A monumental task because it makes the entire platform upgradeable. Why is this big? Before SpaceX, rockets had to be thrown away after takeoff. SpaceX made them reusable. Reusable means 100x lower cost and 100x faster rate of improvement. Before Maple 2.0, any change would’ve required a whole new protocol to be launched - want to change withdrawals? New protocol. Change cover? New protocol. Maple 2.0 allows each of these to be upgraded and reinserted into the protocol like lego bricks. Read the full H2 2022 roadmap here.
Outlook remainder of the year and beyond
The second half of 2022 will be transformational for Maple. Maple 2.0 provides a platform for faster development. We’re launching pools targeting new sectors like Bitcoin mining. The crypto lending market has an open draw with highly favorable conditions for lenders who are able to step in and rebuild relationships with borrowers who performed well over Q2, including higher rates and more lender-friendly terms. Maple is laser focused on returning to growth in TVL with a continued focus on premium crypto institutions.
Go here for an in-depth report on our Q2 Highlights, Key Metrics and Financials.