What is Vauld’s business model and why is it in trouble?

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Vauld is a Singapore-headquartered crypto company that announced fixed deposits against cryptocurrencies, just the last year. However, now the company has released a statement that it is suspending all withdrawals, deposits, and trading in cryptocurrencies for its users. In October 2021, Vauld advertised automatic crypto investments through fixed deposits with a super-high 12.68% interest rate. The company had used television advertisements and financial influencers on social media to promote its products. The company asked for bitcoins as deposits from its customers for a fixed period and in return, it provided interest on the same. The company then converted the cryptocurrencies into cash and lend them to borrowers at high rates of returns. As collateral they would again accept cryptocurrencies of higher value, such as 150% of the loan value, to ensure the collateral covers the value even if the value of the asset deteriorated significantly. In case the borrower fails to repay the money, the collateral assets would be liquidated i.e. sold and the proceeds would be used to repay the depositors. This is similar to how the bank operates, except that Vauld used cryptocurrencies as collateral assets and as a mode of deposit and lending. However, as expected, the value of cryptocurrencies which dipped significantly last month has led to a collapse of the company’s model and its operations.

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