Will the Celsius crypto project suffer the same collapse as Earth?

The Celsius crypto platform is facing difficulties. He announced the freezing of all withdrawals and the suspension of operations for a certain period. Could it become a new Earth, a blockchain project whose value quickly plummeted?

Due to the extreme conditions, we are announcing today that Celsius will suspend all withdrawals, exchanges and transfers between accounts “. Celsius’ announcement of June 12, 2022 took everyone by surprise. The platform, which allowed you to buy and trade assets, was known for allowing them to be.” pointer (to block them to recover interest, ed). Celsius also promised high rates of return on investment, up to 18.63%.

But Monday’s freeze on withdrawals, as the price of bitcoin continues to fall, raises fears of a wind of panic. And remember what the crypto ecosystem Terra went through, the value of which plummeted in a few hours in early May. Could such a thing happen again with Celsius?

Staking and rehypothecation

To fully grasp the situation, one must first understand Celsius’ business model. The platform specializes in staking and in re-mortgage. This is an operation that allows banks to ” reuse assets that have been pledged by their customers in order to secure their loans “, As the Team After Market website explains. In return, customers whose assets are reused receive benefits: they can borrow money at better rates or receive discounts.

Celsius promised very high profits to the people who accepted these deals, but also assured them that they could get their money back anytime, within three days. However, with withdrawals freezing, it’s just the opposite that just happened.

Falling Cryptocurrency Prices Didn’t Help Celsius // Source: Canva

Why were the operations blocked? In its message, the company simply states that it is acting to ” ensure that Celsius honors its withdrawal obligations over time “. The goal says: “Stabilize liquidity and operations as we take steps to preserve and protect assets The company insists that its customers will continue to accrue interest during this period, but does not specify how long the lockdown will last.

Does Celsius have cash flow problems?

Celsius does not explain what prompted his decision to block operations. However, the cryptocurrency market is going through a tough time. Bitcoin even dropped below $ 25,000, the lowest since the end of 2020. Celsius would also be affected by the de-indexing of a stablecoin, which would aggravate its risks.

The situation could also be due to a lack of liquidity. This is a mechanism that has already been observed in re-mortgage from banks: when too many customers ask to withdraw their assets at the same time, there is not enough liquidity to satisfy all requests, because part of these funds is used by the company.

Since the announcement of the blocking of the withdrawal, rumors have circulated about the company’s financial health. Nexo, a competing platform of Celsius, also said in a tweet who considered the latter “ insolvent And that he has proposed to buy back part of his assets. For now, however, there is no confirmation that Celsius would be in insolvency.

Is this the new Earth?

Following the announcement of Celsius, its associated cryptocurrency, Cel, fell more than 60% from 0.36 cents to 0.10. in few hours. A few weeks after the shocking crash of Terra, the situation is worrying and on Twitter the scornful comments against the platform are numerous.

However, Celsius does not necessarily know the same fate. First of all because, even if the price of its cryptocurrency continues to fall, the platform can still rely on the funds that its customers can no longer withdraw. Analysts also reportedly noted that Celsius-linked crypto wallets move large amounts of cryptocurrency, transferring funds from Aave Market to another platform. Movements indicating that Celsius teams would be looking for a solution to ensure their solvency.

But other experts believe the risk is still present: ” if Celsius fails, the project could sell its cryptocurrency stocks, including the stablecoin stETH, which could cause it to lose its index. “Explains the FXStreet website. And therefore, to drag down other cryptocurrencies. Will Celsius survive? For now, nothing is certain, especially if the cryptocurrency market remains so volatile.

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