Maple Finance, the largest unsecured crypto lending platform, is grappling with a debt crisis while gearing up for a major system upgrade. The project's MPL token has plunged, and depositors are likely to stomach big losses. Here's how it happened, and what comes next.

Unlike many other decentralized finance (DeFi) lending platforms that have cropped up in recent years in the nascent digital-asset industry, Maple’s model would not require extra cryptocurrencies to be deposited as collateral that could be seized or quickly liquidated in the event of a default.

In just the past two weeks, some $36 million of loans have defaulted with another $18 million distressed. The soured debt represents 66% of the total outstanding in Maple’s four active lending pools, with some of the biggest borrowers acknowledging they were devastated by the spectacular collapse of Sam Bankman-Fried’s FTX crypto exchange.

“Uncollateralized loans in DeFi are still reliant on centralized parties for underwriting, antithetical to the ethos of transparency and decentralization,‘’

Two former credit pool managers, crypto lender Celsius Network and FTX sister trading firm Alameda Research, are now in bankruptcy and getting tarred in court and in the media over allegedly unsavory business practices.

A third credit pool manager, Orthogonal Trading, allegedly misrepresented its financials to hide losses from FTX and was booted from Maple on Dec. 5.

The prematurely closed loans freed up ample cash in the credit pools, which allowed depositors unnerved by the FTX drama to withdraw funds. (Per Maple’s code, there’s a 10-day waiting period from initiating withdrawals until users can remove any funds.)

In the end, this led to highly concentrated pools with bad debt to distressed borrowers, and mostly depleted cash deposits in the three problematic pools,