Maple Finance is currently battling a debt crisis of $54 million.
The debt crisis also affected Maple Finance native token, which plummets more than 50%.
Despite facing a debt crisis, the lending platform is preparing for a major system update.
Debt and liquidity crises due to macroeconomic circumstances. In line with this, the lending platform Maple Finance has become the latest crypto company to face a debt crisis.
Maple Finance, which had zero distress debt in its outstanding pools a few months ago, shows some $54 million in sour debts in the last two weeks. The distressed debt accounts for 66% of the total outstanding in Maple's four current lending pools.
However, despite being grappled with a debt crisis, the platform is gearing up for a major system upgrade. The upgrade will include modifications to the withdrawal process, an overhaul of the pool cover mechanism, and more data on the public pool dashboards.
Experts believe that the upcoming Maple upgrade will offer an opportunity to include some features to improve risk management on the protocol. Meanwhile, the concern that rises here is how Maple will manage an upgrade while confronting a debt crisis.
Earlier this year, after the Terra Luna ecosystem collapse created a wave of cascading losses and a crypto credit shortage, deposits and loans on Maple fell rapidly. The situation was further amplified by the rapid demise of FTX. As a result, the outstanding loans have dropped to $82 million.
After this, the liquidity crisis and falling demand for borrowing made it increasingly difficult to maintain a balanced loan book. In the last month, Maple's loan book has plummeted by two-thirds from $260 million.
As a result of these circumstances, $36 million in loans have defaulted, with another $18 million distressed. The soured debt accounts for 66% of the total outstanding lending pools, with some of the largest borrowers indicating they were devastated by FTX's dramatic collapse.
The debt crisis not just affected the lending platform but also affected its native token MPL. The token dropped by more than 50% after the meltdown of the crypto exchange FTX.
Maple Finance can not stand to lose significantly on the defaults due to its design. However, the social damage and lack of trust may have long-term consequences.
Experts believe that the upcoming network upgrade would enable the lending platform to strengthen its stance, enabling its native token to regain bullish momentum.
Furthermore, Arca's Doane believes that two critical areas for the improvement of Maple Finance's present state are "the process of how losses are socialized and the composition of assets pooled to pay losses.”
What are your thoughts on the current state of the lending platform Maple Finance? Share your thoughts in the comment section below.
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