Celsius Network, one of the largest centralized crypto lending platforms, may have up to $25 billion under management by 2021 at the time of the hype of the market, is the subject of serious concern over its viability. Several concordant elements tend to demonstrate a situation of vulnerability that could lead to a crash of the platform.
The boon of interest-bearing crypto accounts is drying up
High-yield crypto savings accounts have a irresistible success during the boom phase that the market experienced in 2020/2021. Many investors were quick to store their valuable assets to earn returns, often in the double digits† In fact, platforms such as Celsius or BlockFi, which provide simplified access to the DeFi (decentralized finance) protocol through their centralized management, have a unknown user tree†
However, this windfall that is possible during a bullish expansion is unsustainable when the market falls and it visibly settles for a bear market months, if not years. Also, first recommendation of caution: hurry to withdraw your balls from platforms that continue to pay interest rates that have nothing to do with the change in environmental gear economic†
The collapse of the Terra Luna ecosystem with its stablecoin UST, which against all odds generates more than 20% interest on the Anchor protocol, should probably not be considered an isolated phenomenon. There may be other corpses not yet out of the closet who will also soil the paved ground with greed and unreason. And among these dying on borrowed time might be: Celsius, no stranger to the disaster that has cost users billions of dollars† Indeed, according to blockchain analysis, the lending platform contributed to the demise of the algorithmic stablecoin by withdrawing, at its worst, nearly half a billion dollars in funds it had staked in the peg protocol.
A way of doing things that questions the dangerous practices of the platform (hold assets on a protocol that we knew was very vulnerable), which we have pointed out in the past. For example, in June 2021, one of its then depository providers, Custodian Prime Trusthad terminated its contract citing a troubling strategy of “rehypothecation” (use for its own purposes of assets deposited by customers as collateral) by Celsius.
also US regulators and the user community
Nor has the platform escaped the curious vigilance of US regulators. Securities officers in several states have accused the company of offering products that do not comply with regulations, saying they are ready to file a lawsuit. Above all, Celsius, like other services of this type, was chosen in the name of consumer protection. Because, all platforms from lend without exception, disclaim all responsibility in the event of a problem† Enough to flip the SEC boss who thinks they’re acting like banks without bidding the same assumed degree of protection†
In fact, the user basically has no way of acting if the worst happens. What may seem to be announced a priori insolvent positions on ETH† the company that hid the loss of 35,000 ETH from its customersand a debt of $1.18 billion in the DeFi Aave, Compound, and Maker protocols.
Despite co-founder Alex Mashinsky’s denials that the company is the target of malicious intent based on baseless allegations, caution is advised. The Terra Luna electroshock is still recent and the question is not if there will be more, but who will be next to crash.