The name Celsius Network has been on everyone’s lips for the past week, and with good reason. The platform is at the epicenter of the current crypto-crisis and market collapse.
Celsius Network suspended all withdrawals, swaps, and transfers between accounts a couple of days ago, as many had predicted. Users’ funds are effectively frozen, despite the company’s pledge that acting in the best interests of our community is our first concern.
After crypto lender Celsius Network (CEL) put a freeze on all account withdrawals and transfers, a rough year for cryptocurrency investors has gotten much more onerous.
The revelation from Celsius heightened market anxieties and skepticism in cryptocurrency, sending Bitcoin’s price down more than 13% to under $24,000, a new 52-week low.
Introduction to Celsius Network
Earn a lot of money. Borrow as little as possible. Make an impact on the world. Calculate the temperature in Celsius. Remove yourself from the banking system. These are the mission statements for Celsius.
If you think the procedure of lending, borrowing, and holding money in Celsius is similar to that of a bank, you are mistaken. At least, that is what Alex Mashinsky, the company’s CEO, says.
Mashinsky’s apparent contempt for the old financial system is through in his interviews. Mashinsky claims that the banks’ high borrowing rates and low lending rates are unjustifiable. Few people would disagree with this.
As a result, Celsius Network was founded on the promise of redressing the banks’ wrongdoings.
Celsius’s appealing interest rates of up to 9.32 percent APY on certain assets drew users in, while stated borrow costs are as low as 0.1 percent APR.
Celsius claimed to have 1.7 million customers and $11.7 billion in assets under management (AUM) as of May 17.
The organization claims to have produced more than $8 billion in loans and to have provided extraordinarily high annual percentage yields (APYs) on cryptocurrency deposits of up to 18 percent until recently.
Functioning of Celsius Network
The company Celsius is not the only one that provides these services. Indeed, several of them have begun to operate in recent years, giving rise to the moniker CeFi – decentralized financing (DeFi) alternative in which customers still engage with a centralized middleman.
Celsius offers these kinds of rewards on a variety of stablecoins. Naturally, this sparked a lot of interest, and the company has done remarkably well in recent years.
In fact, in November 2021, the firm increased its latest investment round to a stunning $750 million, valuing the company at $3.25 billion.
Celsius’s success stemmed from its ability to routinely earn larger yields than those it gave to clients. For example, if they offered a rate of up to 7% on USDC, they would use the USDC they had placed to achieve a larger yield.
The term “Celsius” has aroused much discussion. Following regulatory pressure, the site stopped selling interest-bearing accounts to non-accredited investors early this year.
Last year, the states of Alabama, New Jersey, and Texas filed orders against Celsius, saying that the firm was selling unregistered securities to its clients.
Celsius has its own digital coin, CEL, which was sold for $50 million in 2018. CEL’s price has plunged 46 percent in the last 24 hours and is currently down 97 percent.
The Importance of Celsius for Crypto
Markets withdrew in the face of consistently rising inflation and aggressive Federal Reserve interest rate hikes throughout 2022, putting downward pressure on cryptocurrency prices.
In the crypto market, as well as other risk assets, there has been ongoing selling pressure.
In May, the negative feeling surrounding crypto was exacerbated when Luna, a stablecoin linked to TerraUSD (UST), fully crashed after UST lost its $1 peg.
The collapse of Luna and TerraUSD resulted in a $60 billion loss for investors. Worse, it shattered trust in the whole bitcoin industry, which was already known for tremendous volatility and reckless speculation.
Some crypto experts claimed that Celsius Network was responsible for Luna’s demise, although Celsius has refuted these assertions.
Cryptocurrency Industry at Stake
There are a number of reasons why the current scenario with Celsius poses a short-term but long-term threat to the entire cryptocurrency sector.
In the short term, Celsius has a large amount of cryptocurrency. As of the time of writing, their website still claims to have 151,534 BTC in assets, albeit this is unconfirmed and very suspect given the recent volatility.
Whatever the number is, Celsius is one of the industry’s top lenders, and if they begin liquidating assets, the markets would definitely be shaken.
Some have speculated that the company’s recent declines are due in part to the company’s sales.
Crypto Market Contagion
Investors in cryptocurrencies may be concerned about a contagion spreading to other crypto platforms, similar to the type of large withdrawals seen during bank runs.
The uncertainty surrounding the Celsius issue, according to Omid Malekan, an adjunct professor at Columbia Business School who teaches lectures on cryptocurrency and blockchain, contributes to pessimistic crypto market sentiment.
“All crypto investors should be concerned about their potential insolvency because they were a big participant with assets deployed on many DeFi protocols on various blockchains.”
If it is forced into full-fledged liquidation, the withdrawal of those assets might set off a chain reaction of declining prices and forced liquidations for other DeFi users, according to Malekan.
This also brings us to the Bitcoin community’s long-term risk: stringent and burdensome laws.
When the Terra ecosystem went submerged, we witnessed what happened: regulators from all over the world began giving warnings and constructing punitive rules in order to safeguard investors from similar events in the future.
What’s the Future For Celsius?
While Celsius users wait for word from the company on whether or not they will be able to access their funds again, rival crypto lending site Nexo has sent out a letter of intent expressing interest in purchasing the company’s assets. The offer price was not included in the Nexo letter.
Celsius stated that its freezes will be lifted “as soon as possible.”