The Celsius platform prevents its customers from withdrawing their cryptocurrencies. While the market is in the red, the company seeks to prevent the flight of its assets.
Celsius, the platform that allows you to generate interest by depositing cryptocurrency, has temporarily released certain features. In a blog post, the platform announced the blocking of withdrawals and transfers. Concretely, it is not no longer possible to recover the assets deposited in the application.
“Due to extreme market conditions, we are announcing today that Celsius is suspending all withdrawals, swaps and transfers between accounts. We are taking this action today to put Celsius in a better position to meet its withdrawal obligations over time.”Celsius justifies itself in its press release, claiming to want “stabilizing its liquidity”.
Unsurprisingly, platform users accuse Celsius of holding their funds hostage. Celsius account 1.7 million customers worldwide and has more than $12 billion in assets under management.
A soon insoluble platform?
The measure adds to several rumors that have appeared on Twitter in recent days. According to several reputable blockchain analysts, including the account yieldchadpart of Ether (ETH) token stock stored by Celsius is currently blocked. The platform would hold only 27% of the cryptocurrencies of its customers. The other crypto-devices would notably be placed in a smart contract of the Ethereum blockchain. These currencies will be unlocked after the Ether upgrade, which is expected in the second half of 2022. This approach allows Celsius to generate profits on its cryptocurrencies.
Celsius $CEL is functionally insolvent on its ETH position.
Only 27% of Celsius’s ETH is liquid, the rest is either stETH or staked with ETH2, so inaccessible for at least 1 year.
If withdrawals continue at the current rate of… (1/x) https://t.co/Q1xmWeDqc9 pic.twitter.com/4OyCylBw0F
— yieldchad (@yieldchad) June 5, 2022
On the other hand, the operation prevents Celsius from withdrawing the funds in the event of a large withdrawal. If many customers decide to withdraw from Ether at the same time, the platform could find itself in a bind.
To be able to manage withdrawals, Celsius would also rely on many borrowings. The company borrows liquidity when rates are lowest. When rates go up, it lends cryptocurrencies. This mechanism makes it possible to make profits. It is not uncommon for crypto ecosystem services to do this.
It also turns out that Celsius has converted some of its Ether stock to Lido Staked Ethereum (stETH). This cryptocurrency is supposed to replicate the value of Ether. It lost parity with Ether a few weeks ago following a selloff by Alameda Research, which was one of the biggest holders of the currency.
The firm specializing in trading sold its entire stock, the value of which was around $1.5 billion. This withdrawal destabilized the cryptocurrency. According to yieldchad, which broke down deposits on the Curve Finance platform, 44% of Celsius’ ethers are actually stETH. If the platform had to dig into it, to honor withdrawals for example, the token risk of completely dropping out of Ether.
At the same time, Celsius was accused of having hid the loss of about 35,000 ETH to its customers in 2021. Stakehound, one of the platform’s partners, would have lost the private keys allowing access to tokens on the block chain.
The cryptocurrency custody company blamed one of its supporters, Fireblocks. Celsius is not responsible for missing funds. However, the American firm neglected to inform its customers of the loss. This lack of transparency compensated for the erosion of investor confidence.
Note that Celsius also lost funds following the hack of BadgerDAO, a blockchain lending protocol. $120 million was stolen from protocol in December 2021.
The collapse of the cryptocurrency market
Celsius is also affected by the collapse of the cryptocurrency market. For the past few weeks, the digital asset sector has contracted sharply. Bitcoin, the queen of cryptocurrencies, has fallen back to around $30,000. In recent days, the price has even fallen back below 25,000 dollars. The whole market is in free fall.
This violent crash abruptly reduced the liquidity of companies in the sector. Faced with this bear market, several exchange platforms, including the giant Coinbase and the platform BlockFi, were forced to lay off some of their employees in order to reduce costs.
The platform also lost significant sums after the fall of the UST. Developed by Terra, the stablecoin was designed to keep the same value as the dollar. Like USDC or USDT, UST had to replicate the exact value of the US dollar.
In theory, a UST should always be worth one dollar (USD). In practice, the stablecoin of Terra has lost its parity may’s beginning. The block chain de Terra was the victim of a coordinated attack by several financial groups.
Like many decentralized finance services, Celsius was highly exposed to UST. the stablecoin make it possible to offer high interest to investors. The debacle of the Terra ecosystem inevitably caused the loss of large sums. Celsius remained silent on the losses produced by the fall of the UST.
Other crypto platforms in danger?
Celsius isn’t the only platform at risk of defaulting. Swissborg, one of the flagship applications of decentralized finance, was also exhibited at UST.
Mirroring Celsius, the platform also holds a portion of its ethers in stETH. It would hold 79,597 ethers, including 80% of stETH, says Dirty Bubble Media, a renowned analyst in the sector, which explains that it is based on analyzes of the blockchain carried out by experts like Chainanalysis.
“If Swissborg tried to exit its entire stETH position, it still had to pay parity”says the expert.
If Swissborg tried to exit its entire stETH position, it would lower the peg another penny.
More importantly, it would consume 25% of the remaining ETH liquidity in the pool. Swissborg also contributes a few thousand Eth to this pool… 6/ pic.twitter.com/sWIdzMWNvU
— Dirty Bubble Media: 🌡⏰💣 (@MikeBurgersburg) June 8, 2022
In a report published on June 8, 2022, Coinbase warns investors about the Lido Staked Ethereum. The token represents “significant liquidity, yield and credit risks”Coin explainsbase.
Unsurprisingly, some Celsius rivals are trying to take advantage of the situation. This is the case of Nexo, another app promising high returns on cryptocurrencies. The platform offered to buy back some assets held by Celsius.
“After noticing what appears to be CelsiusNetwork’s insolvency and aware of the repercussions for their retail investors and the crypto community, Nexo has made a formal offer to purchase CelsiusNetwork’s qualifying assets after their withdrawal freeze,” announces Nexo on Twitter.
The platform takes the opportunity to advertise by ensuring that it is based “on solid fundamentals and prudent risk management”. Will Nexo emerge victorious from the Celsius crisis?
After what appears to be the insolvency of @CelsiusNetwork and aware of the repercussions for their retail investors and the crypto community, Nexo has extended a formal offer to acquire eligible assets from @CelsiusNetwork after their withdrawal freeze. https://t.co/JFtKTHRLcY
—Nexo (@Nexo) June 13, 2022