As per analysts, leading retail crypto lending platform, Celsius Network, lost balance on complex investments in the wholesale digital asset sector resulting in a massive liquidity crucnch.
On June 15, Celsius, hired lawyers specializing in business restructuring from law firm to help manoeuvre the company from its financial turmoil amid its liquidity crunch. Recently, the New Jersey-based cryptocurrency lending platform paused withdrawals and transfers between user accounts citing ‘extreme market conditions’. Following this, Celsius Network’s native token CEL, tanked nearly 70 per cent in one hour from $0.49 down to $0.19.
.@CelsiusNetwork is pausing all withdrawals, Swap, and transfers between accounts. Acting in the interest of our community is our top priority. Our operations continue and we will continue to share information with the community. More here: https://t.co/CvjORUICs2
— Celsius (@CelsiusNetwork) June 13, 2022
More Trouble Brewing For Celsius
In a fresh rout of controversy, Celsius, appears to have stumbled on its wholesale crypto investments, according to analysts. As those investments soured, the company was unable to meet redemptions from customers fleeing amid the broader crypto market slump. Experts believe Celsius stumbled on risky ‘bank-like investments’. However, unlike banks, Celsius promised its retail customers huge returns, as much as 18.6 per cent annually. The lure of big profits has led individual investors to pour assets into Celsius and platforms like it.
Andrew Thurman, an analyst at analytics firm Nansen, said that the fall in Bitcoin (BTC) prices, which has tanked nearly half its value in 2022, has also coerced Celsius. It pledged crypto assets pegged to BTC as collateral against a loan of other cryptocurrencies.
As Bitcoin slumped, Celsius had to top up that collateral. As per, Cory Klippsten, CEO of crypto investment platform Swan Bitcoin, the entire business model of Celsius is rickety. Noelle Acheson, head of market insights at Genesis, a digital currency prime brokerage, explained,
“This is the closest we’ve seen to a bank run in the cryptocurrency sector.”
A Long-running Streak of Distress
Celsius’ problems antecedes to December 2020, when, hackers exploited nearly $54 million worth of Bitcoins (BTC), it had invested with DeFi platform BadgerDao, according to public blockchain data. At the time, Celsius CEO, Alex Mashinsky, confirmed that Celsius had lost money, but did not disclose how much.
(1/X) Have spoken with a large number of journalists in the past few days, many of whom are concerned about contagion
They want a full picture of Celsius' holdings, 3AC's holdings, etc
For now I simply point them to what we know on-chain: scary numbers! https://t.co/zPI1XhiQzv
— Andrew T (@Blockanalia) June 15, 2022
Nonetheless, Thruman, suggested that the compan’s biggest mistake appears to have been its decision to invest customers’ ether tokens with Lido Finance, a DeFi platform. The investments are known as “staked” ether, or stETH.
In the aftermath of the market downturn, which prompted holders to dump their stETH, dragged down stETH’s price compared to Ether (ETH). This might have made it difficult for Celsius to convert its stETH back to ether to meet customer withdrawals. Thruman added,
“Everybody … could see that they had positions that were significantly under risk.”