In the wake of the suspension of Binance-owned cryptocurrency exchange platform WazirX’s assets, the Enforcement Directorate has now frozen the assets of the cryptocurrency exchange Flipvolt. This includes cryptocurrency assets, bank accounts, and all balances accumulated in their payment gateways. To understand how this chain of events unfolded, first, we must take a look at the major players in the scenario.
What is Vauld?
Flipvolt is owned by the Singapore-based crypto lending company Vauld. Vauld was established in 2018 by Singaporean Indians Darshan Bathija and Sanju Sony Kurian and aimed to encourage long-term cryptocurrency investments among people by offering benefits like higher rates of interest and SIP- similar to the stock market- to its users. This would help draw the interest of people who inherently invest in the stock market and mutual funds to cryptocurrency, which they may see as a new and scary option due to it being a relatively new concept.
Vauld offered more than 275 crypto coin options for its users to trade in, at extremely low brokerage prices. Its goals and policies resonated with many people, and it received a considerable amount of funding from big players in the financial world like Pantera Capital, CMT Digital, Coinbase Ventures, Va lar Ventures, Gumi Cryptos, Cadenza Capital, and many more. Using these funds, Vauld was able to expand its employees fivefold from its original team of 40 people to manage its newly acquired userbase and assets under management (AUM).
Vauld mostly catered to users based in the US; however also offered its services to Indian citizens, with around 20% of their AUM belonging to Indian users. As one of its goals was to provide the lowest brokerage costs to users, it earned most of its profits by extending cryptocurrency to other companies or exchanges in return for the interest gained through the loan- also known as arbitrage.
However, things did not go as planned for Vauld, and they suffered heavily from the recent ‘crypto winter’- a period of time when interest in cryptocurrency trading cools off and less trading occurs, due to which they were unable to earn any brokerage fees or interest. Around the same time, another Singapore-based cryptocurrency firm- Three Arrows Capital- which dealt in crypto hedge funds, went bankrupt and was forced to liquidate. This greatly impacted investors’ faith in cryptocurrency, and they began to withdraw their money rapidly, causing crypto coin values to go down fast. In an attempt to keep itself afloat, Vauld had to lay off around 30% of its employees shortly after it had made additions to its staff.
Hence, low interest in crypto and high levels of liquidation caused Vauld to lose out on its primary source of income- arbitrage. The recent crypto winter has affected not only Vauld but also other notable cryptocurrency firms like Voyager Digital, which was also forced to file for bankruptcy.
Fortunately for Vauld, it was recently acquired by the London-based crypto lending firm Nexo, which attempts to use its name and credibility to establish its presence in the Asian market. Until the negotiations are over, Vauld has been ordered to cease all of its operations. However, investors are waiting with bated breath to see how the outcome of the negotiations affects their assets with the company.
Vauld and Flipvolt
Due to its popularity with Indian crypto users, Vauld established a branch in the country called Flipvolt Technologies. Flipvolt was developed with all Indian cryptocurrency and exchange rules and regulations in mind due to the stricter cryptocurrency laws in the country. The ED accused Flipvotl and Vault of not adhering to proper AML and KYC regulations, letting users get away with illicit behavior due to lax supervision of transactions on the platform, as well as negligence when it came to storing digital trails and records of all transactions.
However, Vault refused to acknowledge these claims, stating that they adhere to stick KYC requirements in every country they have operations in, as well as adhere to their laws.
Yellow Tune – A Shell company?
The ED recently conducted an in-depth investigation on Yellow Tune technology, which at first glance seems like every other Bengaluru-based company offering financial services. However, Yellow Tune drew suspicion to itself when 23 non-banking financial companies were found making hefty deposits into Yellow Tune’s digital wallet, which it held with Flipvolt.
The Ed further looked into all of its supposed premises and concluded that Yellow Tune was, in fact, a shell company created by two Chinese nationals under false names to cover up money-laundering operations. The ED attempted to locate the owners of the companies, trace the transactions being made and track the recipients of the wallets but were not able to come up with any names- leading them to the realization that Yellow Tune simply did not exist as a functioning company.
Taking action after the shocking find, the ED continued to freeze all of Yellow Tune’s assets held with Flipvolt, which amounted to around Rs. 370 crores.
The ED also accused Flipvolt of knowingly complying with Yellow Tune’s activities, as it did not seem to be making any efforts to locate the owners of the fraudulent wallets, showing an aversion to following KYC norms and general negligence towards the nature of its customers.
What do these allegations mean for Vauld’s future?
These allegations against Flipvolt knowingly assisting in a major money-laundering case may spell trouble for Nexo’s ongoing negotiations with the failing firm. Vauld reportedly owes its users and creditors millions of dollars, after which it would fall into a deep and irreparable loss unless the London-based crypto firm takes it over. Nexo has yet to comment on the allegations against Vauld and has not released any statements on the outcome of the negotiations yet.
Conclusion
Following a devastating crypto winter that caused their users to liquidate around $200 million in a matter of days and allegations that they were a complaint party in a major money laundering case, the future of Singapore-based crypto lending company Vauld seems pretty grim. After seemingly finding success early on in their journey, the company’s future took a turn due to the falling interest in the cryptocurrency sphere, leading them close to the precipice of bankruptcy.
Though London-based crypto firm Nexo has agreed to strike a deal with Vaauld and initiate a takeover to expand their operations n Asia, the recent allegations against Vaulds India-based branch Flipvolt may have put a damper on the proceedings. The two companies are yet to reach a decision on the takeover.
