After Celsius, other crypto platforms may run out of cash

In the context of a new decline in cryptocurrencies, some companies that would take a liquidity risk are in turmoil, including the Celsius lending platform.

The storm in the cryptocurrency and stablecoin market from a month ago continues to impact the ecosystem. Last week, many analysts warned of the liquidity risk of some companies exposed to the lido staking eth (stETH) token, such as Celsius and Swissborg.

It was enough for the cryptocurrency market to drop again this weekend (bitcoin has lost 9% of its value since this Sunday to be around $ 25,000 at the time of writing, the ether has lost 11%. of its value and is trading $ 1,300) to further weaken the ecosystem.

US cryptocurrency lending and staking platform Celsius, which has 1.7 million customers and claims about $ 12 billion in assets under management, announced Monday that it will no longer allow its customers to withdraw or transfer their cryptocurrency funds. .

“We are taking this action today to put Celsius in a better position to eventually meet its take-back obligations,” the company explained in a blog post. “We are taking this necessary step in the interest of our entire community to stabilize liquidity and operations as we take steps to preserve and protect assets. Additionally, clients will continue to earn rewards during the hiatus, in line with our commitment to against them “.

Parity problem between stETH and ether

This decision is not the result of chance, it is part of a weakening context in the cryptocurrency market. In fact, after the collapse of the cryptocurrency luna e detachment of the stablecoin land usd (UST) which has no longer fulfilled its promise of parity with the dollar (1 UST = 1 dollar in theory), some have already turned their eyes to another token: the lido pointed to eth (stETH). It is a synthetic token created in 2020 by the decentralized platform Lido, which should have the same peg (or “peg”) as ether (ie 1 stETH = 1 ether). As a reminder, an anchor to a currency is called a “peg”. When there is a difference between the value of the underlying and that of the currency, it is called “de-peg” or “loss of parity”.

However, a month ago, much to the surprise of the ecosystem, this synthetic token detached itself from the ether, posting a 4.7% discount on May 12. Today the gap remains significant, with a 1.45% discount at the time of this writing.

In the context of the upcoming Ethereum merger (The Merge), users can practice “staking”, or a loan of cryptocurrencies made to the blockchain against interest. Specifically, they deposit ether in the smart contracts of the Lido platform to participate in The Merge merger, thus receiving stETH.

“Currently, when people” bet “their 32 ETH on the main network and implement an Ethereum node, they can get variable interest (which should be around 3/5%). 32 ETH will only be released once the merger has taken place. To remedy this, stETH has been created and allows users to obtain a liquid token that can be exchanged, sent, loaned at any time in exchange for slightly lower interest “, explains the founder of Au Coin du Bloc.

As the merger date of The Merge has been postponed several times, this increases tensions in the decentralized finance ecosystem, already weakened by the collapse of the Earth ecosystem.

“Delaying the release of The Merge can create panic, loss of investor confidence, sales, loss of pegs, etc. It all still depends on trust in the protocol,” continues the latter.

“Contagion risk in decentralized finance”

Already last week many analysts warned that some companies exposed to stEth could be at risk of default if their users withdraw a lot of ether in a stressful environment. Brad Mills, entrepreneur of the crypto ecosystem, bitcoin maximalist, had thus cited the case of Celsius Network, which is exposed to 44% in stETH.

“If Celsius were forced to start selling his stETH, there would be a 50% nonpeg on stETH,” the analyst said on Twitter.

“We don’t know for sure if Celsius is insolvent, but the risk of having your funds there is very high right now. Decentralized finance (Defi) in a bear market in cryptocurrencies is high,” he warned.

The contagion risk could also affect centralized platforms, such as the Swissborg company, analyst Dirty Bubble Media believes.

According to data provided by the analyst, the company holds 79,597 ether, of which 80% is stETH. Since the loss of peg on May 12, if Swissborg closes its position, it could lose more than 2,500 ether, or the equivalent of $ 4.5 million, according to the latter’s estimates.

“At SwissBorg, we are fortunate to have strong risk management measures and prudent budgeting practices, fiat and stablecoins, thereby offsetting the volatility risks of other cryptoassets. We hold the remaining third of our liquidity in cryptocurrencies, most of them in the top 10 tokens with solid fundamentals (BTC, ETH and BNB), “the company said in a blog post on Monday.

“Although SwissBorg’s cash value has suffered from the current decline, we have the resources to weather the current storm. Indeed, at current rates, we can survive for another 2 years and we plan further urgency in the unlikely eventuality. that the market bear continues, “added the company.

The analyzes of cryptocurrency companies point in the same direction as those of the American giant Coinbase.

“In our view, the price divergence between stETH and ether reflects significant liquidity, yield, credit and even collateral risks. For example, liquid staking ETH on the Ethereum blockchain represents only a small fraction of the total ETH supply. in circulation (3.8%), of which approximately 90% is owned by Lido “, comments David Duong, Head of Coinbase’s institutional research, in a post on his blog.

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