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Another Giant is looking to Fall - The Celsius Story

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@cryptictruth
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2 min read

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News broke that Celsius has frozen withdrawals form accounts. Now those 1.7 million people are in trouble as they were told Celsius was pausing all withdrawals, swaps and transfers between accounts because of extreme market volatility. It sounds like Celsius Network LLC has also hired restructuring attorneys from law firm Akin Gump Strauss Hauer & Feld LLP to advise on possible solutions for its mounting financial problems.

As we all know the prices for bitcoin and other cryptocurrencies have been plummeting as interest rates rise and risky assets turn fall out of favor in a spectacular way. I wrote about Coinbase cutting jobs along with many other highflying digital currency companies which is adding fuel to this fire.

The problem with Celsius is investors were giving them unsecured loans with little legal protection. Celsius positioned themselves to look like a bank, but they lack the investor oversight and legal protections built into banks and brokerages. With $11.8 billion in customer assets tied up which were lent out to through DeFi has now caused a cascading effect with the underlying assets tumbling.

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To put it simply, Celsius's model was to accepted customer deposits of cryptocurrencies and lent them to other users, including market makers and exchanges, to earn a return. Celsius also puts customer deposits in high-yield, high-risk decentralized-finance investments to promise higher yields. They made a terrible mistake and accepted Ether (Eth) from clients and used it to buy at least 409,000 “Lido staked ether” tokens or stETH. When Eth started to drop the peg broke and has been trading at a discount of about 5%. Oddly enough, the peg broke around the same time TerraUSD (UST/LUNA) collapsed. If you can't figure it out yet this peg break is a significant issue for Celsius. If its users were allowed to withdraw ETH deposits the company would have to sell its staked ether holdings at loss creating a death spiral. So why did Celsius not have enough liquid Eth to cover withdrawths even at a loss. I saw numbers saying they have about 1 million Eth with about 27% liquid Eth and about the staked. The issue with staking right now is that Eth is inaccessible until well after Eth’s transition to proof-of-stake. SO what we are seeing here is a loss and liquidity problems which is a terrible combination.

I feel for all those with their money trapped and Celsius had some very good marketing that attracted all those users. This is not only a major issue for them, but has contained to destabilize the entire market.

I guess this add for 18.63% does not look so good now...

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Please trade carefully!

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