Crypto lending protocol Wildcat says Kinto default poses 'no risk of contagion' for outstanding loans

Wildcat Labs, the decentralized lending platform, has announced that the closure of the "modular exchange" and Ethereum Layer 2 Kinto represents the first official default on its platform.

"Regrettably, Kinto have announced their intention to shutter operations, and have stated that they have insufficient assets to repay the full debt incurred by the Kinto Phoenix Facility market," Wildcat wrote in a post on Monday.

Over the weekend, the institution-focused Kinto network announced it would shut down by the end of the month following an exploit over the summer that drained $1.55 million from its lending pools, The Block previously reported.

Following the attack, Kinto raised $1 million through its "Phoenix" plan to restart trading operations by issuing a new $KINTO token reflecting pre-hack holdings and replenishing some of the drained liquidity pools. However, the new debt from the recovery loans made further financing difficult for the protocol.

Kinto founder Ramón Recuero, also the founder of Babylon Finance, has said that Phoenix lenders will recover 76% of their loan principal using remaining foundation assets, a statement Wildcat backed up on Monday.

The loan is currently in a fixed-term state until Sept. 30, after which it will flip into an open-term revolving facility where specific lenders make requests for repayments. For its part, Wildcat has been treating the default as an opportunity to educate users on how its unusual undercollateralized lending structure works.

According to Wildcat, these withdrawal requests will be processed in batches and treated as equal claims. If there are insufficient funds to fulfil requests, each claim will receive funds based on a pro-rata basis.

"More importantly, requests in later batches do not have any assets allocated to them until there is sufficient capital to fully honour all previous ones: think of this queue as an hourglass," the team said. Wildcat added that all Kinto lenders should therefore submit requests for their full withdrawal requests because "a later batch will mean that no assets will be allocated to you."

"Kinto have stated that they intend to continue pursuing the perpetrators of the exploit to seek restitution for the balance," Wildcat said, adding that the default will not affect other loans on the platform. "By design, the loss is limited to the Phoenix Facility alone, with no risk of contagion or haircut for any other lender to any other borrower."

There is over $150 million in outstanding credit on Wildcat, and about $368 million has been originated since launch in 2023, following a major uptick after its generalized V2 release on the Ethereum mainnet in February.

Co-founded by Crypto Twitter mainstay Laurence Day and Indexed Finance's Dillon Kellar, Wildcat is atypical for a crypto lending protocol for offering undercollateralized loans. The project recently closed a $3.5 million funding round led by Robot Ventures at a $35 million valuation.

The project previously raised $750,000 in a pre-seed round from Wintermute Ventures, led by Wildcat silent partner Evgeny Gaevoy, and a $1.1 million seed round, primarily from participants using Cobie's angel investor platform Echo.