Another prominent cryptocurrency lender is going down
And another domino falls.
According to Voyager Digital, another prominent cryptocurrency lender has just closed down, which confirms that the liquidity crisis affecting the young industry is far from stabilizing.
Celsius Network filed for Chapter 11 bankruptcy on July 13, becoming the latest victim after the crash of the cryptocurrency market that saw more than $ 2 trillion wiped out in less than nine months.
“Today’s filing follows Celsius’ difficult but necessary decision last month to pause withdrawals, exchanges and transfers on the platform to stabilize the business and protect customers,” the company, which has more than 100,000 creditors, explained in a press release.
“This is the right decision for society and our company,” said Alex Mashinsky, co-founder and CEO, Celsius.
Do customers get their money back?
Celsius is a company that operates as a bank in the crypto universe. Basically, it is a unit that acts as an intermediary between different actors. The business model is to lend to hedge funds and other institutional investors the cryptocurrencies of the customers to whom it promises significant high returns.
The problem is that Celsius Network has lent money to funds that have invested in cryptocurrency. But as the fall in cryptocurrency prices intensified after the collapse of the Luna coin and its sister token UST or TerraUSD in May, customers of Celsius, like other lenders of Babel Finance, Voyager Digital, BlockFi, began to rush to withdraw their money. In the face of this haste, lenders did not have enough in reserve to satisfy everyone, hence the decision of many of them to suspend withdrawals.
When Luna and the USD crashed, Celsius struggled to withdraw funds from their Terra Anchor Protocol ecosystem, which, for example, promised a 20% return on deposits.
“Without a break, the acceleration of withdrawals would have allowed certain customers – those who were the first to trade – to be paid in full while leaving others to wait for Celsius to reap value from illiquid or long-term asset distribution activities before receiving a improvement, “Celsius explained July 13.
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It is unclear whether Celsius customers will be able to get their money back just because the company had said that their assets were considered unsecured and not guaranteed in the event of insolvency.
“Poor risk management”
“Large parts of Celsius’ retail user base may be adversely affected through no fault of their own, but through poor risk management in the company,” said Marius Ciubotariu, co-founder and CEO of the Hubble Protocol cryptocurrency platform. “These users had no clarity in how their money was spent and have now undoubtedly lost faith in Celsius and similar platforms.”
“The news that Celsius is now facing bankruptcy is just another example of the consequences that come from opaque, institutionalized lending structures,” commented Stefan Rust, CEO of the cryptocurrency platform Truflation and Laguna Labs. “These structures benefit from the economic situation, and their opacity usually leads to large losses for the average investor.”
After suspending customer withdrawals on June 12, Celsius has spent the past 30 days repaying more than $ 900 million in debt to the decentralized financial apps Aave, Compound and MakerDao. according to blockchain data and tracker Zapper.
This special treatment is controversial because the company seems to have favored these creditors to the detriment of users.
Kirkland & Ellis acts as legal counsel for Celsius. Centerview Partners is the financial advisor and Alvarez & Marsal is the restructuring advisor.
Celsius also allowed anyone to borrow cryptocurrency and earn interest for lenders. “Earn high. Borrow low. Change the world,” the company says on its website. One of the catch phrases is “Borrow like a billionaire”. The platform, through its CEL token, promises “financial rewards” as much as 30% extra return weekly. However, some options are not available to US-based users.
When it raised $ 400 million in October last year from investors led by WestCap and the Canadian Caisse de dépôt du Québec (CDPQ), the Celsius Network saw its value increase to $ 3 billion.
The company, which operates as a traditional bank, had more than $ 8.20 billion lent to customers, $ 11.82 billion in assets under management and had more than 2 million customers as of May 17 this year, according to the website.
On July 13, the platform said it has $ 167 million in cash on hand, “which will provide plenty of liquidity to support certain operations during the restructuring process.”
