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Maple Finance Debt Indicates Crypto Lending Risks With No Collateral

The emergence of Maple Finance brought a different approach to the entire process. This bold DeFi lending protocol requires no deposit of extra crypto tokens as collateral for borrowing.

In the decentralized finance (DeFi) space, cryptocurrency lending came as a means that allows investors access to their preferred tokens. However, they must deposit other crypto coins as collateral before borrowing the given assets. This will help curtail risks and losses for the DeFi lending platform.

Instead, it all lies in the hand of the lending pools to decide on granting the crypto loans or not. They would have to evaluate the borrower’s ability to repay based on his creditworthiness.

Maple Finance Suffers Bad Debts Due To Risks of Uncollateralized Loans

However, the prevailing crisis in the crypto market has given a massive blow to Maple in terms of stress tests since its launch in 2021. The protocol has witnessed a cumulative $36 million of defaulted loans and $18 million distressed in the past fortnight.

Maple’s bad debts represent about 66% of the total outstanding in its four active lending pools. Also, most of the vast borrowers have revealed losses due to their investments in the collapsed FTX exchange.

The outplaying events are creating negative waves for Maple. Already, its native token, MPL, has plummeted to an all-time low as it lost 50% of its value. Most participants and analysts are trying to highlight the wrong footing with the DeFi lending platform.

Maple Finance Debt Indicates Crypto Lending Risks With No Collateral

They intend to x-ray the rules and operations of the protocol for a possible amendment that could sustain the project again.

The focus is on the risks associated with uncollateralized crypto lending. Also, a combination of fraudulent decisions and poor protocol design heightened the project’s condition.

Shortfalls For Maple Lending Procedures

Maple faces a severe crisis with its crypto credit formalities. The protocol grew its lending book to $900 million within a year. Its popularity spiked among market makers that seek liquidity for borrowing and crypto trading companies. However, its range of depositors comes from institutional and average retail investors that want huge yields.

But the collapse of the Terra ecosystem and FTX exchange brought massive losses to Maple. According to Token Terminal data, the protocol had a drop of $82 million in its outstanding loans.

Two of the protocol’s former credit managers, Celsius Network and Alameda Research (FTX’s sister trading firm), are already bankrupt. In addition, they are facing several allegations regarding their unprofessional business approaches and practices.

Also, the third credit pool manager, Orthogonal Trading, was kicked out of Maple Finance. The firm was accused of misrepresenting its financial records to conceal losses from the FTX fiasco.

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JPMorgan Says S&P 500 Can Soar Over 10% Today – Will Bitcoin Follow?

Today and tomorrow are probably the most important days of the year for the Bitcoin and crypto market. Today’s release of the Consumer Price Index (CPI) will possibly be the key for the coming weeks and months.

At 8:30 ET, the CPI for November will be released. Tomorrow, Wednesday at 2:00 PM ET, the Federal Open Market Committee (FOMC) will announce its interest rate decision for December.

Following that, Federal Reserve Chairman Jerome Powell will address the press at 2:30 p.m. and provide the rationale for the decision and the updated forecast for inflation and interest rates (dot plot).

If CPI comes in better than expected today, there will likely be a rally for risk assets like Bitcoin. If the CPI falls short of expectations or even rises, it could mean a rude awakening for BTC investors – at least this seems to be the market consensus.

Expectations for today’s CPI are 0.4% lower than the previous month, when it came in at 7.7%. As a result, the projected CPI is at 7.3%.

JPMorgan Draws Possible Scenarios

Meanwhile, banking giant JPMorgan published an analysis that CPI inflation below 6.9% could trigger a massive rally in traditional trading markets.

Given Bitcoin’s correlation with USD markets and the S&P 500 in particular, this could likely have a beneficial impact on the BCT price. In total, JPMorgan has mentioned six possible scenarios.

The most likely and expected outcome with a 50% chance is a Y/Y CPI between 7.2% and 7.4%. This would lead to a modest rally in the traditional markets, according to JPMorgan, and would likely have a positive impact on the Bitcoin and crypto markets.

However, as the market heavily hinges on expectations, it remains to be seen whether the majority of market participants have not already priced this in.

As the second most likely scenario with a probability of 25%, JPMorgan considers a CPI between 7.5% and 7.7%, which would mean only a slight drop or stagnation of inflation.

According to the banking giant, this would cause the S&P 500 to plummet massively, by 2.5% to 3.5%.

The Bullish Scenarios For Bitcoin

Furthermore, JPMorgan assigns a 15% probability to the bullish scenario of CPI landing at 7.0% to 7.2%, which could mean a 4% to 5% rally for the S&P 500.

The banking giant gives the most bullish scenario, a CPI of 6.9% or below, only a 5% chance. But then the S&P 500 could see a legendary rally of 8% to 10%. As Bitcoin is the higher beta, this could mean double-digit gains for Bitcoin.

Bitcoin BTC USD 2022-12-13

At press time, BTC investors seemingly remained on the sideline, awaiting the CPI announcement. BTC stood at $17,168.