Atlendis announced a partnership with X-Margin to perform credit scoring of borrowers using privacy preserving risk monitoring and thorough due diligence. Because of recent events, X-Margin downgraded the rating and score for ZigZag.
Current situation
X-Margin has downgraded ZigZag from a BB rating to a C rating, following material changes to ZigZag’s creditworthiness that became evident through X-Margin’s real-time risk monitoring capabilities. ZigZag remains under review, as X-Margin has attempted to work with the ZigZag team and gather more information since last week.
The C rating indicates a lower probability of repayment, and the revised X-Margin rating suggests that loans should only be extended by those willing to accept higher risk.
Timeline of events
On May 26th, ZigZag completed a credit scoring evaluation by X-Margin and opened a pool on Atlendis. ZigZag initially received a BB rating (606 / 1000), reflecting medium risk. A material amount of assets were visible to X-Margin. More information about X-Margin’s credit evaluation methodology can be found here.
On June 13, 2022, ZigZag borrowed 1.1 million USDC for 60 days from its pool on Atlendis.
During the recent market downturn which was unexpected for many market participants, visible assets quickly declined, with no evidence of offsetting gains which would balance the impact.
On June 20, 2022, ZigZag’s credit rating was downgraded from BB to C (265 / 1000). The decline by two letter grades reflects the changed financial state, and the fact that information access can be materially improved. The credit score remains under review, and will be modified further as more information becomes available.
How did Atlendis Labs become aware of the situation?
Atlendis Labs was immediately alerted by X-Margin that ZigZag might have a material deterioration of their credit score.
Borrower downgrade
According to X-Margin, which uses real-time risk monitoring, ZigZag’s credit score downgrade reflects a deterioration in their financial state. Following the deterioration, X-Margin has requested additional information from ZigZag. ZigZag remains communicative and X-Margin continues to work with them to access updated information.
Next steps
Atlendis is in close discussions with both ZigZag and X-Margin to better understand the current situation.
Are lender funds at risk?
Currently, the borrower has not defaulted – the credit score has been downgraded given the change in information available. This change of credit score means that ZigZag now has a higher risk profile than they did at the start of the loan.
Will lenders who participate in ZigZag’s pool get their funds back?
ZigZag is in communication with Atlendis and X-Margin, and confirmed they are working to respect the terms of their loan agreement.
Is it possible to sell my position when a borrower’s credit score has been downgraded?
The fact that a borrower’s credit score has been downgraded does not affect the lenders’ capacity to manage their position.
Does Atlendis have a role in helping lenders get their funds back?
The Atlendis platform allows any lender to select the exact rate at which they are ready to lend to any borrower. Atlendis and X-Margin will inform the community of any adjustments in credit ratings.
As per the Terms of Use, Atlendis does not guarantee that the borrower will repay the loan and gives no undertaking to the lender.
What steps is Atlendis Labs taking to mitigate risk and ensure this doesn’t happen again in the future?
Volatility is a common feature of any financial marketplace, with credit profiles changing to accurately reflect a borrower’s capacity to meet their financial obligations. While this has been an unprecedented month for the crypto markets, X-Margin will continue to work proactively on pressing for more transparency on the financial health of borrowers, especially in volatile times, to help lenders be able to make informed credit decisions.
Information for existing and future lenders on the Atlendis protocol
The liquidity pools on Atlendis are not shared and each pool is set up for one specific borrower, any lenders who did not deposit into the pool are not subject to this post.
Atlendis felt the need to share this information with the Atlendis community including our liquidity providers, as transparency is among the core values of our protocol.