How Cred Lost $783 Million

Hey Lantern Community,

A crypto lending platform went from serving 440,000 users to filing for bankruptcy in just eight months.

Today, we’ll go over how NOT to run a crypto lending business.

But first, market update!

$783 Million Lesson

Cred collapsed in November 2020, taking $150 million in customer funds down with it (now worth over $783 million due to crypto appreciation).

The executives were just sentenced to federal prison in August 2025.

Here's how they gambled their customers' funds:

Mistake #1: Secret Casino Lending

While customers thought their crypto was being used for "collateralized lending," Cred was secretly converting it to Chinese yuan and making unsecured microloans to gamers through something called "play-first, pay-later."

When COVID hit in March 2020, these gamers couldn't pay back their loans. Cred tried to recall $10 million from their Chinese partner but got nothing.

At Lantern: Your crypto sits safely with BitGo in institutional-grade custody. We never trade or speculate with your collateral, and we don't lend it out to generate interest. Your assets are used solely to secure your loan. Period.

Mistake #2: Lying to Customers During Crisis

On March 18, 2020—one week after losing millions—CEO Dan Schatt held an "Ask Management Anything" session and told customers Cred was "operating normally."

They knew they were broke, but kept accepting new deposits.

At Lantern: Radical transparency. We publish information about our operations, custody arrangements, and risk management. No hidden partnerships nor secret lending strategies.

Mistake #3: The $9.4 Million Fraud

Cred's Chief Capital Officer (who turned out to be a UK fugitive) invested 800 Bitcoin with a fake company called "Quantcoin."

When they tried to withdraw funds, the fraudster stopped responding. The entire $9.4 million vanished.

At Lantern: Every loan is overcollateralized with your crypto as the only backing. We don't invest customer funds in mysterious third-party schemes. Your collateral backs your loan, nothing else.

The Three Questions Every Crypto Lender Should Answer

After studying the Cred bankruptcy, here are the questions you should ask:

1. "Where exactly is my crypto held?"

Cred's answer: "With trusted partners" (translation: scattered across risky Chinese lending operations)

Lantern's answer: BitGo institutional custody, the same service used by major exchanges and ETF issuers. Your crypto never leaves secure cold storage.

2. "What do you do with my collateral?"

Cred's public answer: "Professional asset management and collateralized lending"

Cred's reality according to court documents: Rehypothecated customer crypto for unsecured Chinese microlending and fraudulent "investments" with fake companies

Lantern's answer: Absolutely nothing. It sits in BitGo custody until you pay back your loan. We make money from interest payments, not from gambling with your assets.

3. "How do I know you're not secretly lending my crypto to third parties?"

Cred's answer: Trust me bro.

Lantern's answer: Check the blockchain. You can see your assets sitting exactly where you deposited them. In the coming months, Lantern will also be providing proof of reserves.

The Cred Executives Are in Prison

In August 2025:

• CEO Daniel Schatt: 52 months in federal prison

• CFO Joseph Podulka: 36 months in federal prison

• Plus $25,000 fines each

They start serving their sentences on October 28, 2025.

When platforms aren't transparent about what they do with your money, it usually ends badly.

Why Lantern Exists

We built Lantern specifically because of disasters like Cred, Celsius, and BlockFi.

Our model is boringly simple:

1. You deposit crypto as collateral

2. We give you cash

3. Your crypto sits safely in custody

4. You pay interest-only payments

5. When ready, you pay back the loan and get your crypto

No secret partnerships. No rehypothecation. No gambling with your assets.

Just overcollateralized loans backed by your crypto, held in institutional custody, with full transparency.

Want to see how real crypto lending should work?

Text us: (415) 365-0100 or check our calculator: https://lantern.finance/borrow

Stay safe out there,

The Lantern Team

This newsletter is for educational purposes only and does not constitute financial advice. Always do your due diligence before choosing any financial service provider.