What happened to Celsius (CEL)?
On June 13, 2022, the price of the native token of the Celsius crypto landing platform (CEL) fell by roughly 50% after its administration announced the suspension of the withdrawal function amid “extreme market conditions”. What happened next? Let’s find out!
According to experts, the Celsius decision could have been influenced by losses when using high-risk DeFi-instruments, specifically synthetic assets with collateral.
Following the freezing of customer funds, the platform attempted to stabilize the business. Following the initial collapse, the value of CEL quickly recovered.
How many clients does the Celsius Network have?
Celsius is a centralized crypto landing platform, the primary services of which are cryptocurrency deposits and loans of crypto assets. It positions itself as a replacement for banks and provides financial services related to crypto assets.
The Celsius Network was founded by Alex Mashinsky, Nuke Goldstein, and S. Daniel Leon. The platform was officially launched in 2017, and the project team released its own token — CEL — a year later.
During its operation, the company has attracted more than $860 million in investment, according to the Crunchbase portal.
Celsius managed $24 billion in user assets in December 2021, but by the end of May 2022, this figure had dropped to $12 billion, according to the Financial Times. The platform claimed to have 1.2 million users in November 2021.
Who can use Celsius?
The platform does not disclose the exact list of supported countries and the list of services in each of them. The service was initially launched in the United States and was available to all residents of the country, but in April 2022, it was limited to accredited investors. There are also special rates for both loans and deposits for users from the United States. Celsius is known to operate in several European countries.
How do cryptocurrency deposits in Celsius work?
Celsius Network offers attractive rates of return on deposits in various cryptocurrencies. For example, as of June 14, 2022, the maximum deposit rate in USDC stablecoins is over 9% per annum, while for DAI this indicator is over 6%.
Several factors influence the rate of return. To begin, the client can receive income in the deposit cryptocurrency. If, on the other hand, he chooses to receive a percentage in CEL platform tokens, the rate will be higher. The higher the account’s CEL, the higher the deposit income. The bonus can range between 10% and 30%. Weekly interest is paid on the deposit.
Celsius also offers loans backed by cryptocurrency assets. The service allows users to use various cryptocurrencies as collateral by obtaining a loan in the stablecoin they require.
The loan interest rate is determined by the loan-to-collateral ratio (loan-to-value, or LTV). The lower the rate, the higher the LTV, the more collateral the user leaves. In fact, excess collateral on loans serves as a form of protection against changes in the value of the collateral asset in Celsius.
Which services does the Celsius Network provide?
- CelPay is a cryptocurrency payment processing service. It enables you to transfer assets to other users, including those who do not have a cryptocurrency wallet. Transfers are not subject to a commission.
- Celsius Swap is a no-commission trading platform that supports over 40 cryptocurrency pairs..
- CelsiusX is a Celsius unit tasked with integrating DeFi products into the main platform.
What went wrong?
Celsius abruptly suspended withdrawals on June 13, 2022, citing “community protection” and “extreme market conditions.” The token CEL plummeted in response to this news.
According to experts, the true reason is that the platform is no longer generating enough revenue to pay out to customers. According to analyst Jack Niewold, this is a “liquidity crisis.”
Meanwhile, shortly before the announcement, Celsius transferred approximately 104,000 ETH and 9,500 WBTC to the FTX exchange, according to journalist Colin Wu.
According to the Ape Board, in mid-June 2022, various assets worth over $1.5 billion were stored in Celsius crypto wallets. The stETH token accounts for approximately 30% of them, with the WBTC accounting for approximately 27%. The platform invests in decentralized protocols, with 60% in Aave and the remaining 35.5% in Compound.
Did Celsius invest in Terra?
Another major blockchain project, Terraform, and its two main crypto assets, the LUNA coin and the algorithmic UST stablecoin, collapsed just a month before the problems in Celsius. As a result, experts are compelled to seek a link between the two events.
The blockchain analytics service Nansen revealed at the end of May that Celsius was a major holder of the infamous algorithmic stablecoin UST of the Terraform project. The company most likely used these coins for highly profitable farming on Aave. After lowering the rates of return for UST staking in the Anchor protocol, Celsius became one of the “whales” who quickly withdrew their funds from the Terra ecosystem.
The founder of the platform, Alex Mashinsky, denied this information. However, back on May 13, Celsius publicly announced that they had withdrawn ether coins worth more than $500 million from the Anchor itself.
Does Celsius use Lido?
In addition, the platform actively uses client funds in the Lido protocol. It enables liquid staking by allowing you to send cryptocurrencies to stacking and receive an equal amount of synthetic tokens that can be used for operations in other DeFi applications without taking them from there.
What about MakerDAO?
Lucas Nuzzi, head of the R&D department at CoinMetrics, drew attention to the fact that Celsius manages one of the largest WBTC (“wrapped” bitcoin) repositories in MakerDAO.
The platform issues the DAI stablecoin as a result of this pledge. However, as the crypto market corrects, the cost of collateral is constantly decreasing. To avoid liquidation, Celsius increased the amount of WBTC in the vault from about 18,000 to 24,000 tokens in June.
Celsius and the crypto market fall
Concurrent with the news about the crypto landing platform’s problems, the cryptocurrency market continued to fall: on June 13, the price of bitcoin fell below $23,000, and Ethereum fell to around $1300.
Although many have linked this trend to a bad news backdrop, experts agree that the real reason is macroeconomics, specifically expectations of another increase in the US key rate and an increase in inflation.
What is next?
Although Celsius’s credibility has been questioned, the project may be able to turn the tide. By June 15, the price of his CEL token had returned to and even surpassed its “pre-crisis” level.
At least several steps have been taken by the platform to stabilize, according to observers, such as:
- Significantly increased the amount of collateral in the MakerDAO vault, as a result of which the liquidation price decreased to $14,000 per WBTC.
- Increased the provision of ETH for its stETH assets in the Aave protocol and paid off the 2.4 million USD debt.
- According to media reports, Celsius has hired lawyers whose possible goal is the company’s financial restructuring. The platform is currently considering several options for attracting additional investments.
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