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Another Major Crypto Lender Goes Down

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And another domino falls.

After Voyager Digital, another major crypto lender has just come down, confirming that the liquidity crisis plaguing the youth industry is far from stabilizing.

Celsius Network filed for Chapter 11 bankruptcy on July 13, becoming the latest casualty of the cryptocurrency market crash, which wiped out more than $2 trillion in less than nine months.

“Today’s filing follows the difficult but necessary decision made by Celsius last month to freeze withdrawals, swaps and transfers on its platform in order to stabilize its business and protect its customers,” the firm with more than 100,000 creditors explained in a press release. follows.”

“This is the right decision for our community and company,” said Alex Mashinsky, co-founder and CEO of Celsius.

Will the customers get their money back?

Celsius is a firm that operates as a bank in the crypto universe. Basically, it is an entity that acts as an intermediary between different actors. Its business model is to lend funds and other institutional investors to hedge its clients’ cryptocurrencies, to whom it promises significantly higher yields.

The problem is that the Celsius network has lent money to funds that have invested in cryptocurrencies. But when cryptocurrency prices intensified following the collapse of Luna Coin and its sister token UST or TeraUSD in May, Celsius customers, like other lenders, Babel Finance, Voyager Digital, BlockFi, sought their money out. started running. Faced with this rush, lenders did not have enough reserves to satisfy everyone, so many of them decided to suspend withdrawals.

When Luna and USD crashed, Celsius struggled to withdraw funds from its ecosystem, the Terra Anchor protocol, which for example promised a 20% return on deposits.

“Without a standstill, the acceleration of withdrawals would have allowed some clients – who were the first to act – to make full payments, while leaving others behind from gaining value from illiquid or long-term asset deployment activities. Will have to wait for Celsius first. A recovery,” Celsius explained on July 13.

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It is not clear whether Celsius customers will be able to recover their funds simply because the company said their assets are considered unsecured and are not guaranteed in the event of bankruptcy.

‘Bad risk management’

“The large scale of Celcius’ retail user base could have a negative impact on the company through no fault of their own, but through poor risk management,” said Marius Ciubottariu, co-founder and CEO of crypto platform Hubble Protocol. “These users had no clarity on how their money was being used and have now undoubtedly lost faith in Celsius and similar platforms.”

“The news that Celsius is now facing bankruptcy is another example of the consequences of non-transparent, institutional debt structures,” commented Stephen Rust, CEO of crypto platform TrueFlation and Laguna Labs. “These structures take advantage of the financial situation, and their ambiguity typically leads to huge losses for the average investor.”

After suspending customer withdrawals on June 12, Celsius has paid off more than $900 million in debt to decentralized finance apps Away, Compound and MakerDAO over the past 30 days. According to Blockchain Data and Tracker Zapper.

This particular behavior is debated because the firm appears to have favored these creditors to the detriment of its users.

Kirkland and Alice serve as legal advisors to Celsius. Centerview Partners is a financial advisor and Alvarez & Marsal is a restructuring advisor.

Celsius allowed anyone to borrow cryptocurrency and earn interest for lenders. “Earn high. Borrow low. Change the world,” the firm says on its website. One of its catch phrases is “borrow like a billionaire.” The platform, through its CEL token, promises “financial rewards” of as much as an additional 30% weekly return. But some options are not available for US based users.

When it raised $400 million last October from investors led by Westcap and Canadian Cais de départe du Québec (CDPQ), Celsius Network raised its valuation to $3 billion.

The firm, which operates like a traditional bank, had more than $8.20 billion in loans to customers, $11.82 billion in assets under management and had more than 2 million customers as of May 17 this year, according to its website. .

On July 13, the platform said it has $167 million in cash, “which will provide sufficient liquidity to support certain operations during the restructuring process.”

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