This week began with another terrible news for the cryptocurrency market. According to statistics from CoinMarketCap, Bitcoin (BTC) and Ethereum (ETH) have plummeted to fresh 52-week lows of $22,920 and $1,190, respectively. The existing market dynamics indicate that a crypto winter may loom, and the recovery path will be exhaustive.
Meanwhile, Celsius (CEL), a DeFi lending platform and one of the major crypto lenders announced through Twitter on Monday morning that it has halted all withdrawals, swaps, and account transfers.
The platform posted on its official Medium page that:
“Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, Swap, and transfers between accounts.”
In response to this unanticipated disclosure, the price of CEL token dropped to $0.2083, a decrease of over 46% in the last twenty-four hours.
Interestingly, Celsius posted in an announcement on 7th June that:
“We at Celsius are online 24–7. We’re working around the clock to continue to serve our community. Celsius has one of the best risk management teams in the world. Our security team and infrastructure is second to none. We have made it through crypto downturns before (this is our fourth!). Celsius is prepared.”
Celsius also commented on its connection with Luna and about false actors spreading misinformation:
“At this already challenging time, it’s unfortunate that vocal actors are spreading misinformation and confusion. They have tried unsuccessfully, for example, to link Celsius to the collapse of Luna and falsely claim that Celsius sustained significant losses as a result. They have stirred confusion around HODL mode and the importance of protecting user accounts. And the list goes on.”
Meanwhile, infuriated twitterati’s shared their concerns:
What compelled Celsius to reach this decision?
In the formal announcement, the Celsius team emphasised that the platform took this decision to put Celsius in a stronger position to meet its withdrawal commitments over time.
Celsius further said that it is taking the required measures for the benefit of its whole community to stabilise liquidity and operations while preserving and protecting assets. Following its client commitment, the platform assured that users would continue to earn rewards throughout the suspension.
Commenting on the process and timelines, the official announcement stated:
“There is a lot of work ahead as we consider various options, this process will take time, and there may be delays.”
Is Celsius following the footsteps of Terra?
As unsettling as it may seem, Celsius is now experiencing several problems that might impede its path to recovery.
Alex Mashinsky, the creator of Celsius, turned to Twitter in May to alleviate concerns that the Luna fork posed a threat to the company’s business, assuring users that Celsius had “little exposure” to Luna and UST and rejecting allegations to the contrary as “rumours” circulated by competing services.
Today, Mashinsky refuted reports that Celsius had a liquidity issue hours before the company announced its service suspension.
Furthermore, Wu Blockchain stated on Twitter that Celsius moved over 104,000 ETH to FTX over the previous three days, including approximately 50,000 ETH today, 12,000 ETH yesterday, and 42,000 ETH the day before. Additionally, Celsius moved around 9,500 WBTC to FTX today.
This massive asset transfer indicates that Celsius is experiencing a liquidity problem and may be on the brink of collapse.
In the meanwhile, regulators often voiced worries over Celsius’s activities. New Jersey issued a cease-and-desist order against Celsius Network in September 2021. Texas planned a hearing to examine whether it should give a cease-and-desist order, and Alabama asked Celsius why it shouldn’t be banned within a month.
In addition, in October 2021, New York Attorney General Letitia James listed Celsius as one of the platforms required to disclose information on its activities and products. Celsius said that it cooperated with state authorities.
Buyout offer from Nexo
Nexo, a digital asset management company, reacted to the news of its competitor Celsius suspending withdrawals by submitting a request to acquire a portion of Celsius’ liquid assets.
Nexo posted a letter of intent on Twitter on Monday morning outlining its prospective interest in acquiring certain residual qualifying assets. It aims to buy collateralised loan receivables secured by corresponding collateral assets and brand assets of Celsius Network LLC and Celsius Lending LLC.
According to Nexo, the offer will be valid for one week, until June 20, 2022, at 4:30 a.m. UTC, unless either party accepts, rejects, or withdraws before that time.
Meanwhile, Invezz reached out to Nexo to inquire about their plans if the buyout of Celsius is successful. Nexo co-founder and managing partner Antoni Trenchev said:
“At the time being, we are far more concerned with providing the crypto community with the necessary resources and tools to get through the market volatility, rather than with our reputation. We believe our actions will speak for themselves.”
Is Celsius on the verge of collapse?
Users stake money on Celsius, and the network utilises the capital on its platform to support its own investments and cover loans to other users.
Every week, Celsius Network pays users up to 30% interest. However, the network’s current liquidity issue has limited the potential profits for consumers.
Now, the most crucial worry is that Celsius emptied previously known DeFi holdings to finance their primary DeFi wallet. Celsius Network’s primary DeFi wallet decreased from $5.6 billion in Ethereum, WBTC, and other tokens to $10,514 due to significant withdrawals of WBTC from AAVE and the transfer of $247 million to the FTX market.
While withdrawals from the main DeFi wallets may be compared to a bank run, Celsius is still yet to explain the replacement of WBTC and ETH taken from AAVE with stablecoins such as USDC and its rationale.
After recent news of halted withdrawals, it looks like Celsius might follow in the footsteps of tokens LUNA and UST.
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