Terra-Victim Invictus Capital Defaults on $1M TrueFi Loan

Failed crypto hedge fund Invictus Capital failed to repay a loan from decentralized lending protocol TrueFi, according to TrueFi’s loan data dashboard.

The firm missed paying down its $1 million loan denominated in Binance USD (BUSD) stablecoin, which was due to mature on Oct. 30. The debt was uncollateralized, meaning that Invictus did not pledge any assets against it, and secured the loan by its reputation and good financial standing at the time.

TrueFi warned investors in a Twitter post in early October that Invictus might fail to repay the loan. New World Holdings, Invictus’ Cayman Islands-based parent company, entered into voluntary liquidation after suffering a blow in the crypto rout initiated by the multibillion-dollar implosion of once-top blockchain project Terra. Invictus reportedly moved investor funds to Terra’s failed stablecoin USTC and to crypto lender Celsius Network that went bankrupt in July.

TrueFi has not issued a “notice of default” to Invictus yet. Invictus borrowed $28.8 million and paid it back with interest on TrueFi through 2020 and 2021 before defaulting on its latest loan, according to TrueFi’s dashboard.

“Invictus’ default once again illustrates the fragility of trust-based uncollateralized lending,” Walter Teng, vice president of digital asset strategy at research group Fundstrat, told CoinDesk.

This is the second uncollateralized loan to default on TrueFi within a month following Korea-based Blockwater’s failure to repay its $3 million debt on the platform. Another decentralized lending protocol, Maple Finance, faced difficulties in June after Babel Finance, a crypto lending firm, became insolvent and defaulted on a $10 million loan. The default resulted in a $7.9 million loss to investors. Maple decided to tighten its lending standards, Bloomberg reported last month.

These defaults amid the ongoing shakeout among struggling crypto firms show the risks and challenges of incorporating unsecured lending – which is widespread in traditional markets – to decentralized finance in the young,volatile digital asset market.

CoinDesk sent inquiries to TrueFi and Alvarez & Marsal, New World Holding’s representative in the court-assisted liquidation, for comment.