The Algorand Foundation, the team behind the Algorand blockchain, revealed this week that they had exposure to Hodlnaut freezing withdrawals. Hodlnaut is a low-tier centralized exchange and crypto lender based in Singapore that at one point had $500M under management. They recently shut down withdrawals, due to the downturn in the crypto market. Hodlnaut noted that they did not have direct exposure to Three Arrows Capital or Terra LUNA, which says a lot about how poorly they managed risk. WatcherGuru disagrees with that claim, saying Hodlnaut held $187M in UST.
How Much Did the Algorand Foundation Lose in Hodlnaut?
The Algorand Foundation said they had $35M in USDC exposed primarily through locked, short-term deposits on Hodlnaut. These excess funds were deposited as general treasury management hoping to get some yield to help support ongoing efforts by the foundation.
For me, the real question is why is this part of their treasury management? Hodlnaut is not a top-tier institution, and the Algorand Foundation is not a hedge fund that should be chasing risk for higher returns. All in all, this is a cascade of foolish mistakes: Hodlnaut should have done a better job at managing risk, and the Algorand Foundation should have focused on building Algorand instead of getting higher yield from dumb investments.
The foundation was quick to point out that “These funds were surplus to day-to-day requirements and represent less than 3% of the Foundation's assets, and we do not anticipate operational or liquidity issues due to this action.”
This investment likely won’t do any meaningful damage to Algorand or the foundation behind it, but it has to erode some trust that they’re focused and working on the right things.