With Celsius, failures are linked to the cryptocurrency ecosystem

Failures are linked in cryptocurrency. Celsius, a decentralized financial platform, announced on July 13, 2022 that it had voluntarily declared bankruptcy. The start-up ensures that this allows itself and its customers to benefit from the protections promised by Chapter 11 governing this status. On the occasion of this bankruptcy filing, Celsius demanded that employees be paid and that their benefits be maintained.

Suspension of activities in June

Short of cash, Celsius suspended operations (transfers, withdrawals, exchanges) on its platform in mid-June. “Without a suspension, accelerated withdrawals would have allowed some customers – the first to respond – to be paid in full while other customers would have had to wait for Celsius to recover value from illiquid or long-term asset distribution activities. to be paid “., the cryptocurrency broker explains today. Failure is logically the next step.

The idea is of “stabilize the business, complete a full restructuring transaction that maximizes value for all stakeholders and emerge from Chapter 11 in a good position for success in the cryptocurrency industry.”says Celsius, who looks confident in his future.

$ 167 million in cash

However, this is not so obvious. Cryptocurrency lenders borrow from other cryptocurrency players and also take out dollar credits. In the world of decentralized finance, loans are “collateralized” in cryptocurrency, for example in Bitcoin. If the price of Bitcoin falls, the borrower has to deposit new bitcoins, as explained by L’Usine Digitale. The whole system is based on the participation of more and more actors in this economy, otherwise it crashes.

Celsius is one of the largest cryptocurrency lenders out there. Last May, it claimed to have managed approximately $ 11.8 billion in assets under management. Celsius also had another $ 8 billion in customer loans, according to CNBC. Today, the startup claims it has $ 167 million in cash, which is enough “to support some operations during the restructuring process”.

Celsius claims 1.7 million customers, attracted by great promises of returns. Customers who can no longer touch their goods. The platform owes its users about $ 4.7 billion, according to its bankruptcy filing seen by CNBC, and there is a hole of about $ 1.2 billion in its balance sheet. And unlike the traditional banking system, which typically secures customer deposits, there is no formal consumer protection in this cryptocurrency industry.

A Ponzi scheme?

Especially Celisus is accused of having promised extraordinary returns to its customers and of having paid the first depositors with the money obtained from new users. This Ponzi scheme is highlighted in a lawsuit filed against Celsius, as reported by CNBC. In parallel, the start-up has also invested its funds in other platforms that offer equally high returns to keep its business model afloat. Celsius had invested at least $ 500 million in Anchor. This lending platform is the one used for the UST stablecoin, a cryptocurrency project pegged to the US dollar that plummeted in value last May.

The fall of Celsius marks the third major failure of the crypto ecosystem in two weeks. Voyager Digital, which has 3.5 million customers, also filed for bankruptcy following the compulsory administrative liquidation of Three Arrows Capital (3AC) which did not repay the equivalent of $ 673 million in cryptocurrency loans. It’s hard to predict where these failures will end, but it seems likely that other platforms will suffer.

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