Celsius, the tens of billions of encrypted lending platform, is in crisis. Is the CEL game over?

Celsius Network operates as a financial technology platform with an economic model that challenges the traditional banking model, offering interest-bearing savings accounts and lending as well as payments in digital and fiat assets. Celsius announced on June 12 that it was suspending all withdrawals from its lending platform, citing “extreme market conditions” and the need for “stable liquidity.” This decision has a direct disruptive effect on the crypto market itself.

Celsius launched the CEL token in June 2018 to support Celsius’ revenue and reward system. The current negative news about Celsius has swept the entire crypto circle and news social media. Many people have a question:

What does Celsius do to your assets when you deposit stablecoins such as USDC to earn an annual rate of 7.1%?

net interest margin

In the banking industry, an important source of income for banks is the net interest margin, that is, they charge about 5% on the loan, and then give you 1% interest, of which there is a 4% interest margin, and this 4% is the net interest margin, This is a key performance indicator in the banking industry and is a very common practice in the industry.

The logic of many lending businesses is like this, and the lending business of centralized exchanges like Binance does the same, and the business itself is legal. But what we’re going to talk about today is not the net interest margin, but the issue of integrity and transparency, because Celsius rarely does it in a transparent way throughout the process of obtaining the net interest margin profit.

Celsius, the tens of billions of encrypted lending platform, is in crisis. Is the CEL game over?

According to an analysis by Twitter user yieldchad on June 6, Celsius may technically be insolvent. The project has a total of 1 million ETH, but only 268,000 have sufficient liquidity. The other 445,000 pieces are Lido’s stETH, which can only be exchanged for 287,000 pieces of ETH at the current Curve exchange rate. The remaining 288,000 coins were directly pledged into the Ethereum 2.0 contract and could not be taken out for at least one year. At a rate of 50,000 ETH per week, Celsius will run out of liquid ETH in five weeks.

Then on June 7th, the news pointed out that Celsius lost at least 35,000 ETH in the event of the private key loss of Stakehound, the staking solution of Ethereum 2.0. But the bad news goes far beyond that.

Celsius, the tens of billions of encrypted lending platform, is in crisis. Is the CEL game over?

Celsius is a large “CeFi” (centralized finance) wealth management platform, which is relatively well-known in the United States. However, what is interesting is that Celsius has chosen to remain silent during the year when Celsius lost a huge sum of over $70 million, until it was discovered by users that Celsius had such a large financial loophole.

Celsius may be insolvent by the end of 2022, and users still locked in deposits will be forced to bail. Bail is when an entity forces its users to withdraw less money than they have deposited, which usually occurs when the entity has no means of repaying all of its debts. When forced bail comes along, savers stand to lose a lot. The situation is only going to get worse.

market conditions

In a bear market, yields are low, so fewer people are using leverage and fewer people are borrowing. Business models like Celsius will start to unravel as they fail to deliver the high yields promised to depositors.

In the CeFi space, even more legitimate competitors, such as BlockFi and Nexo, are slashing their valuations from $3 billion to $1 billion in a round, a desperate attempt to raise more money for operational survival.

liquidity problem

Celsius used to allow flexible redemptions, where anyone could withdraw funds and forgo earning interest. But the status quo is that Celsius has 73% of ETH locked in stETH or ETH2, which makes it impossible to withdraw until ETH is merged. Celsius cannot meet redemption needs if every depositor withdraws money

The haze of encrypted WK business

Celsius still has a part of the funds locked in the cryptocurrency WK field, which has been hit hard in 2022. You must know that the cryptocurrency WK field has so far been an investment project with high risk and low return.

With funding stuck in such a stalemate, Celsius had to rush an IPO in a very bad market. Even if Celsius tried to IPO its WK business, such a move would be nothing more than a bluff. So a lot of Celsius funds are illiquid and cannot be withdrawn for many years.

Lose a lot of ETH

Celsius lost at least 35,000 ETH in key Stakehound blunder. Not only did Celsius not have enough income to pay the interest, but it also lost a lot of money in the DeFi hack and the LUNA death spiral. Additionally Celsius lost $50 million in the Badgerdao hack.

Forced hold mode

In order to slow things down after the capital outflow crisis, Celsius broke their promise and forced users into HOLD mode, requiring users to provide more documents to withdraw funds. This is a blatant halt to withdrawals. This will also speed up the fermentation and panic of time.

Celsius loans are made to repay customers. Celsius has borrowed at least $76.7 million in USDC and $18.3 million in USDT in the past 30 days to cover withdrawals. That said, Celsius has borrowed nearly $100 million to date to repay user withdrawals. This means that Celsius is currently limited in solvency, and borrowing also means that its position now has a closing price.

Continued outflow of funds

According to Celsius’ own figures, they have seen more than $2 billion in outflows so far. In addition, there is chaos within their management team. Moshe Hegog was a consultant when the company was founded, and Moshe Hegog was convicted as a fraudster, and no one would want to hand over their net worth to a convicted fraudster given a second chance.

Celsius, the tens of billions of encrypted lending platform, is in crisis. Is the CEL game over?

The Celsius CEO and his wife are selling CEL, according to people familiar with the matter. Celsius CEO sold CEL while claiming to buy, but don’t forget that on-chain data doesn’t lie. Those who are careful can look at the price of CEL in the past year and find that there is obvious insider dumping.

Throughout the lending process, users are actually lenders, not depositors. While nominally users appear as depositors, in practice users are lending their funds to Celsius according to Celsius’ terms and conditions, and depositing in Celsius is more like an unsecured loan to an unregulated company, which is incompatible with Celsius. The deposit operation in the bank is completely different.

Celsius makes it very clear in their terms and conditions that beneficial ownership is transferred to them, that is, users will no longer have ownership of tokens after depositing, and once they lend, the initiative is in the hands of the borrower, and Celsius is by manipulating CEL tokens. price to manipulate its books to make its balance sheet look much better than it actually is.

Celsius, the tens of billions of encrypted lending platform, is in crisis. Is the CEL game over?

After Celsius announced a withdrawal suspension on June 13, the CEL token price began a free fall. Other tokens followed suit, and it will be a long period of turmoil for DeFi, especially cryptocurrencies in general.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/celsius-the-tens-of-billions-of-encrypted-lending-platform-is-in-crisis-is-the-cel-game-over/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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