Inlock encounters a situation that requires the temporary suspension of certain services on the platform until it is resolved. The platform holds 100% of the client’s assets and collateral, but a failure in the liquidation process has made a small part of the client’s assets unavailable to the platform. As of today, an “emergency shutdown” process will be activated, which includes the complete isolation of the occurring damage. The process will be terminated as soon as we are able to resolve the dispute through mediation, legal action, or other means.

Inlock has always been committed to providing the highest professional standards of service. Although the collateral liquidation process was essentially an invisible process for clients, the success of the Savings Account and the Loan function depended on its operation. A hybrid liquidation process was developed to minimize the chances of unsuccessful liquidations as much as in the last four years, there has never been a failed liquidation. As a result, the platform has been able to manage client assets smoothly and remain solvent in the most extreme market conditions. Finally, thanks to the risk threshold built into the liquidation process, we have been able to continuously increase the risk reserve fund of the platform, which has received almost half a million dollars from this source alone as of today. The purpose of the risk reserve fund is to cover asset shortfalls in the event of unexpected losses. This has never been necessary since the platform was launched. Until now.

On the 4th of November, the whole crypto scene was shocked by the suspected insolvency of FTX, one of the biggest cryptocurrency exchanges. As a result of this, the CEO of Binance published his statement, that due to the suspected insolvency, they cancel all exposure to FTX. This was an important sign for all market participants. Inlock also started to eliminate all of its exposure to FTX.

In the meantime, the price of cryptocurrencies dropped as well. The exchange rate of Bitcoin first decreased below $17000 on the 8th of November and remained there since the 9th of November. Inlock had to liquidate nearly 20 million USD worth of collaterals. Part of this was performed internally and using our intermediaries. For high-value liquidations, we preferred to use OTC desks, because these kinds of deals do not run the risk of exchange rate fluctuations. Unfortunately, one of our partners was reckless, they stored all of their assets, including the assets of their clients on FTX, and performed the liquidations there. At first, this partner requested a grace period when we tried to perform the end-of-day settlement. Only later was it discovered that they are not able to fulfill our demands because all of these assets are locked at FTX and hence unavailable. As a result of this through no fault of our own, $7 million worth of our own assets is locked at FTX. During this time, the situation of FTX further escalated, and finally, FTX filed for bankruptcy on the 11th of November. As a result of the current situation, unfortunately, it is not likely that we will ever get back our assets from FTX. Considering the fact, that FTX was one of the biggest participants in the cryptocurrency market, it can be assumed, that besides Inlock, other services will face the same issues and need to apply emergency measures.

The lack of trust, that resulted from the FTX situation, reached Inlock as well. In recent days, our clients withdrew $4 million worth of assets, most of it directly after the disclosure of the insolvency of FTX. This was preceded by events shocking the whole industry like the collapse of Luna and UST, the bankruptcy of Celsius and disturbances at some other services. All these trend-setting events resulted in the continuous reduction of assets handled by Inlock in the last nine months. As of now, the total assets handled by Inlock are $41 million.

As a result of the loss taken from the liquidation and the unfavourable market conditions, the liquidity in Inlock reserves has decreased. The current balance of the Inlock reserve is more than enough to keep the platform running, however, the state of undercollaterization obliges us to initiate the “emergency shutdown” process. Based on this decision the following restrictions take place from today:

  • deposits and withdrawals are suspended temporarily
  • new loans cannot be requested
  • new customer onboarding was also suspended
  • to keep up platform integrity, we disable tokenmarket-related functions temporarily
  • suspending the retail API functions
  • suspending the pioneer and welcome bonus program, and canceling the deposit promotion that we started on the 31st of October.
  • suspending ILK-based badge distribution

Based on the “emergency shutdown” process, Inlock will not initiate any new loans either on the platform or outside. All open-ended loan contracts have been recalled and most of them are received until now. We also facilitated early termination for all long-term institutional and customer loans. The purpose of the actions is to isolate the damage and make client assets liquid on the platform. Based on the predefined rules of the “emergency shutdown” process we cannot pay interest for the client assets. Although clients cannot deposit or withdraw under the process, we try to maintain the smooth operation of the swap function.

The platform maintainer considers the following alternatives for dealing with the situation:

  • primarily through mediation or legal ways, we try to recover the assets stuck on FTX.
  • if this does not lead to results in the short term, we will try to raise funds, with which we can refinance the assets that have become unavailable.

The Inlock team is confident and determined to find a solution to the current situation. In the spirit of transparency, it will be implemented fully with the involvement of customers, thereby distancing ourselves from the high-risk activities that essentially caused most of the damage events in the crypto market in the past six months. We ask for the patience of our customers to manage the situation to the best of our ability. Our customers have made a long-term commitment to Inlock and have remained with us even after the extremely negative crypto market events, we will continue to strive to earn this trust.

Inlock team

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