It was no surprise that Celsius filed for bankruptcy this week. Customer assets are usually all over when a platform freezes them. It doesn't mean that the fall of this lender wasn't a big deal.
The CEO said the lender had $25 billion in assets. The lender had $11.8 billion in assets as recently as May. The firm had another $8 billion in client loans, making it one of the biggest names in the industry.
The cash on hand of Celsius is down to $167 million, which it says will allow it to support operations during the restructure process.
According to its bankruptcy filing, Celsius owes $4.7 billion to its users, and there's a hole in its balance sheet.
It shows the power of leverage, but it also shows how hard it is to keep the party going when you get rid of all the cash.
The fall of Celsius is being compared to the fall of a major Wall Street bank that foretold the 2008 financial crisis.
The days of customers collecting double-digit annual returns are over regardless of whether the Celsius implosion is a sign of a larger collapse of the greatercryptocurrencies. Celsius' promise of big yields as a means to onboard new users is a big part of what led to its downfall.
Nic Carter said that they were taking losses to get clients in the door. The yields on the other side were not real. They were pulling through returns.
Three weeks after Celsius halted all withdrawals due to extreme market conditions, the platform was still advertising in large bold text on its website, which paid out weekly.
You can earn up to 18.63% APY in minutes if you transfer yourcryptocurrencies to Celsius.
These promises helped to get people to use the internet. The company said it had 1.7 million customers.
Celsius has more than 100,000 creditors and some of them lent the platform cash without any guarantees, according to the company's bankruptcy filing. Sam Bankman- Fried's trading firm, Alameda Research, is one of the top 50Unsecured Creditors.
Should there be anything for the taking, the first ones to get their money back will be the ones who have already paid.
Most account activity will be paused until further notice and it was not requesting authority to allow customer withdrawals.
Reward accruals are halted through the Chapter 11 process, and customers will not be getting reward distributions at this time, according to the FAQ.
Customers are out of luck at the moment. Customers may never be able to recover their losses from the bankruptcy proceedings. There is a question of who would be first in line if there is a large payouts at the end of the process.
There aren't formal consumer protections in place to safeguard user funds when things go wrong
According to the terms and conditions of Celsius, any digital asset transferred to the platform is a loan from the user to Celsius. Customer funds wereUnsecured loans to the platform because there was no Collateral.
Customers may not have any legal remedies or rights in connection with any Eligible Digital Assets used in the Earn Service or the Borrow Service that may not be recovered in the event of a Chapter 11 filing. The disclosure is similar to an attempt at immunity from legal wrongdoing.
One of the most popular lending platforms for retail investors with high-yield offerings is Voyager Digital, which has 3.5 million customers.
After the company goes through bankruptcy proceedings, users with a combination of thecryptocurrencies in their account could potentially be eligible for a bag of goodies.
It's not clear what the token will be worth or whether any of this will come together in the end.
Three Arrows Capital is the third major player in the space to file for bankruptcy protection in the U.S.
Legislators on Capitol Hill want to establish more ground rules.
Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, D-N.Y., want to provide clarity with a bill that lays out a comprehensive framework for regulating the industry and divvies up oversight among regulators.
The problem with Celsius is that it wasn't real.
Celsius is accused of operating a Ponzi scheme in which it paid early depositors with the money it got from new users.
In order to keep its business model afloat, Celsius invested in other platforms that offered similar high returns.
According to a report from The Block, Celsius had at least half a billion dollars invested in the failed terraUSD project. Many analysts said Anchor's 20% annual percentage yield was unsustainable.
The collapse of the UST project was a big part of why the cascade of major failures was so significant.
"They always have to source yield, so they move the assets around into risky instruments that are impossible to hedge, and that's why they do it."
The $1.2 billion gap in its balance sheet is the result of poor risk models and the fact that collateral was sold out from under it by institutions.
Customer deposits may have been lost in UST. You get a 'hole' when assets go down in price. Poor risk models remain liable.
Celsius isn't the only one There are cracks in the market. Carter of Castle Island Venture says that the net effect of all this is that credit is being destroyed and withdrawn, and that the solvency ofCryptocurrencies is being tested.
Carter said that this has the effect of driving up yields as credit gets harder to get.
Carter expects to see a general inflationary deleveraging in the U.S. and elsewhere, which he says only makes the case for stable coins even stronger.
He said that the part of the industry that relies on the issuance of frivolous token will have to change. The result is expected to be heterogeneous across the space.
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